Mike Wilson's Second-Half Outlook transcript

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 2000 and 2002 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 have to think about this cycle is that they're building all this stuff.

Elon is ultimate builder, right? He's going to build all this stuff in space and maybe you're more skeptical than I am. And 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 And And that's that's the trajectory. >> Welcome to the Risk Reversal podcast. I am Dan Nathan. That is Guy Adami. >> I'm checking out the What do they call it? >> Swag.

Yeah, we have swag, too, by the way. Look at 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. >> Thanks. >> 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. >> Look, no, they they give you like a jacket or something like that. >> We don't have that for you. >> [laughter] >> So, by the When you say longest-standing, um this is no joke.

Mike Wilson is my longest-standing friend in this business. You and I met in the late '90s. What? What? We're friends? Is that what you [laughter] said? All right. But, you and I are going to go We're going to do two segments cuz Guy Adami has a show to do. We just were informed. But, >> Fast Money. >> Right. But, you know who else is on that show? >> Mike Wilson and Dan Nathan. >> Correct. But, you go up there. It takes a little bit longer for him for the makeup.

Okay. So, you and I on the B block of this, we're going to take a We're going to take a walk down memory lane. Yeah, there we are. We're going to talk about the early 2000s, really the bubble popping, but really the lead up to that. Mike, you are a prolific strategist. You also, as a CIO, you oversee lots of funds. You talk to some of the biggest investors that exist on this planet. Um where are you right now? You you made a a pretty epic turn, I want to say 2 years ago.

You got really bullish. You were as you would say, you know, you you held on a little too long in '23. We did the same thing, by the way. Um 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. Um I would say so we we the call we've been on lately is so first of all, the reason things rallied so much after liberation days is we as we've discussed, we think that was the end of what I call a rolling recession.

So coming out of a of a recession, you typically get incredible operating leverage. Uh the 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 4 5 6 weeks ago was the revision breadth started to peak out from a rate of change standpoint. So we made a negative call on the semiconductors.

Uh 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 mid-cycle in this recovery from the recession that ended in April of 2025. So what does that mean? It means no longer you need to 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 we can track this data now. Um we look at uh 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. Um by the way, our call of the prior period was out of consensus that it was early cycle. I mean, I 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 cuz 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 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 breadth was going to roll over.

And by the way, hyperscalers have underperformed. And so that and we we 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 and we're digesting this breakout move that we saw earlier in the week in the S&P. >> surprised at how quickly that call came to fruition? I mean, it took like 2 weeks for that what you just talked about to play out.

I mean, that's not >> Well, it's because we're great salesmen. >> No, >> [laughter] >> I'm not You know that I'm I mean, within a couple weeks of what you that call, I mean, that's what the returns have been. >> It really was remarkable. And and and and this is something that's changed though in the last I'd say 5 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 earths 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 3 or 4 months.

It was really the last 3 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 group. >> You've talked I've seen you on all the different shows and a recent appearance on Squawk Box, you talked about the volatility within all the different names in the different sectors, but it wasn't manifesting itself in the broader market.

You had I think and I 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 3 and 1/2 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 we've had a major correction in the multiple this year. Uh and it's been that's been ongoing kind of all year, but really the the the last correction that from the index level that started, I guess, June 1st, call it, into the lows of uh call it the 20 around when when Korea bought in, okay?

So, that was about a 6 7% correction and it was this 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 been at 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, is 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.

Um 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. 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 this call, I don't know, over 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, I have to respect that, all 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 5 to 7, 8% on the S&P. It's probably worse for other groups in 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 going to actually fight inflation. I mean, Kevin Warsh 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, it's doing the same thing. They're providing the same amount of liquidity in the RMP. 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 group being, by the way, cuz 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 the 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 6, 7, you know, it went up 6, 7% 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 Warsh 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 is 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'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, FedWatch 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 earning story is still strong enough through the end of the year, and the multiples have de-rated 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 Well, I think he's just he's a new guy.

He's a new It'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 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 a combination of a lot of those things. Some people have one view, some people have the other. Doesn't matter though. The 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. >> Well, I 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, and 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 about. 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 that What is that called? 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 that 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 trade 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 6 weeks ago.

Now, if you announce you're spending more money, the the market punishes you. So, I don't see why these companies, they're just 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, and 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 neg- it's not negative growth, it's a deceleration. >> were raising 50, 100% for 2 years. >> guys know this. Everybody knows that. So, and 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 re-rated 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% drawdowns. We've had three of these now in semiconductors since chat chat GPT 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 um are the non-publicly traded companies? Specifically Open AI 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 uh spenders are going to be easily funded and some spenders are not going to be funded anymore, okay?

Not to name names cuz you know, it's the mar you look at the market, you can see like who is raising capital more easily than others, which means what? The pie 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 Neo Clouds, 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 uh larger toll than others and there's a commodity players and and that's what the market is is figuring out now. >> Well, let's go back to um I 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 re-rating in the hyperscalers you think is you know, presented an opportunity there, right? And we know that, you know, the balance sheets and the moats 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 SaaS, and but all of a sudden now, um you know, investors took another look at what they, you know, see it 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 SaaS space that you think is being overlooked? Where Where do you find in tech that that, you know, that that value, but it's also quality? >> Well, I mean, absolutely.

I mean, even within semis, there's a spread between the best companies and the worst companies. I mean, in the last 3 months, I mean, some of the literally the worst semi names went up the most. >> Mhm. >> Which and then that reversed. So, I think it's the same story with within sectors. Like, we made a negative semi call 6 weeks ago, 5 weeks ago. That call's kind of finished. Now, the call is who's the higher quality names.

Let's take a Let's talk about Nvidia. Nvidia, okay, is gushing cash, okay, and the stock has gone nowhere for 2 years. Why is that? Because it's been a low-quality rally. So, I would argue that 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 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 mid-cycle, 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 the 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 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, but yeah, no long- longer giving, you know, giving credit >> might again.

We'll see. I mean I 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. [clears throat] >> Hey Mark, give me a call. I'll tell you what to do, okay?

You want If you want your stock up, maybe >> you think he's been so stubborn though? I 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 um and he was uh playing golf over the weekend with a legendary VC investor who'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 used 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 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 neo cloud and if Anthropic and Open AI are starved for compute, what's going on at Meta that they can actually turn into a neo cloud?" >> 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.

Uh 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? They 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 maybe maybe Meta does it. >> Well, they Maybe they buy 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 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, um, 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 is they were throwing it in the 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. >> The meta >> 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 a fact. >> And they've been Yeah, but you know, 75% Yeah. >> But, that generally once the incremental margins peak, it's kind of over for the stock for a period of time. Um, number two, it's a cyclical business. Everybody knows that. So, you, you know, when the 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 >> Crypto mining, crypto mining. >> Yeah, so it's just There's And oh, by the way, it's still what, A $4 trillion market. >> No, absolutely not. >> like it's, you know, forgotten. >> 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 the flatlining at 75%.

What's the inflection point? And how how punished will they be if they come out with the 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, you want to say it that way, but like they 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. Um 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 run downs 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.

So, this is >> And China, by the way. I mean, like And China's a really important part of this. If you think about the bookend 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 was 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 um you know, I I just think that um is something that At this point has been under appreciated because, you know, Nvidia, they have export bans, but if you pay a vig, you know what I mean, you can sell your chips um 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 fairly under appreciated right now. >> Well, if it's under appreciated, I mean, people are well aware of it. 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 governments subsidies. Um 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 a they have a little bit of a tailwind there, too. But look, competition in my view is good.

It's cuz 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 up wave when the marginal price is is stable or going up, and then just not get caught in that down draft, 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 telecom 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 you 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 Bessent 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 would 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 Bessent and Kevin Warsh 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 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 amiss. 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 it you know, the 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 -2 right now, -2 and 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 what the F, guys? 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 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. >> Yeah, that's right. >> 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 Yellen is way well aware of that. And so he's going to exhaust all those tools to make sure that this is sort of a >> Not a story. >> Well, yeah, that it that that that it's manageable. >> Right. >> Like we don't want the yen at 140, but we also want it at 170. >> Yeah. >> So let's just eat let's let's do these things as much as we can and to do it in a way which is also not to we also don't have a 5% tenure.

So you're you're managing a Yeah. >> in the Yeah, they're walking the tightrope here. >> But once again, they're they're doing it. >> They're doing it. No, I take comfort, you're right, in 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 would say is it's just an 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 under invested because of that, we've under saved, and then we have to sell our bonds to all these foreigners. And 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. >> 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 Mnuchin is a very markets-experienced guy. The new Fed chair is also a very markets-experienced guy. Uh by the way, this is 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's to think because then I lose information. >> Mhm. >> And it's it's such an investor way of thinking about >> that. >> I I want the market to tell me >> what to do. >> Not tell me what to do, but like tell me where >> thinking. >> what things are off. >> But that's at odds with what investors want.

I mean, what they've become accustomed to, right? And so, and that's the 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. >> 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 you anymore. That would be like companies saying I'm not giving guidance anymore.

How would that go down? That's how you would get killed. So, the fact that bonds are up 25 basis points, that's kind of a win. >> deal. >> You're pulling away guidance, and the and the bond market uh yields are 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." Stock would be down like 40% the next day probably. People would be like, "Wow, can't 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 that we'll end this guy's got to do the show that we're both going up to do, right? But but whatever. Um when you think about this, okay, let's just and 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 hand over 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 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 doubt. But you used 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 3 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 multiple's five times. Cuz 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 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 >> [laughter] >> 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, I I I By the way, I make mistakes >> we? We do that a lot. We we have a we have a daily podcast and TV show where we do that. >> many times, and you know, the when By the way, the market can can be wrong, okay?

And it can get over its skis. 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 de-rated 30% for the hyperscalers. They've de-rated 15% for the S&P 500. Semiconductor stocks have de-rated by 50%. So, so that that gives me comfort that the market is is well on to this. >> Figuring it out. >> It it took the stocks out probably a little further than they should have.

They got a little crazy at the end. They've now corrected probably 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 67. >> But we're also going to hit some of the sectors. We just went heavy on tech. I don't want to hear I want to see where else you're thinking other than just the hyperscalers and the and component suppliers.

So, all right, Guy. >> See you guys later. >> in a little bit. >> [music] >> All right, now I'm back with Mike Wilson. Uh it seems a little formal. We were just bullshitting [laughter] for the 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, is 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 long-time 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. >> of physical AI, so yeah. >> Bird is really head of Thematics more broadly, but Adam is really focused more on the tech parts, tech-centric.

And so um he does cover SpaceX as an example. As he 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 you know you're making 10-year predic- 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 and I I I think he's a I think he's a very good thinker. >> 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 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 that are choosing banks like to see that sort of thought process that goes into at least the way you >> Well, by the way, to be clear, any investor who's, you know, investing in these types of 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 about these platforms. You know what I'm excited about? It's 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 healthcare other attempts of healthcare administration. >> So, when you just said, you know, you have to think about 10 years out, I'm 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 GBT to get like A's when they were getting B's, you know, that sort of thing. And and so >> We're seeing more of that now though, David. I mean, to be fair, you know, we have this adopter basket now of stocks and like it's not like it's still in 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 back big back office, um healthcare >> Healthcare for sure, biotech. >> So, you're talking about highly regulated industries also. >> Potentially, but a lot of them are cost benefits now, efficiency benefits.

You know, those 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, this guy, and it's incredible." I said, "Okay." Put on Spotify, listen to it for like a week or two.

I was listening to this 2 hours, I was like, "This is ins- This is the best new artist I've ever heard in my life. This is the best artist I've heard in like 2 years." So, I look at the uh picture of the guy and I go, "Wait a minute, this guy's like he's like 70 years old. How I I I definitely wouldn't know if I've heard of this guy, okay?" I I type punch in so-and-so, is it AI AI? Apparently, like people knew about it.

I didn't I didn't know at the time, but it was like but I still listen to it. It's incredible like the music. >> Really? And 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 a 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 know, 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 you I mean like uh >> 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, you maybe these drones aren't going to kill people, maybe they're going to be there to they could put up a barrier so that you can't actually have a a unit war. >> you know what's crazy?

That's a Listen, that's the best use case that we're seeing right now. The asymmetric warfare that we're seeing in Ukraine and we're seeing in Iran. I mean, that's changed the game. I think you'll talk to a lot of folks who've been in the military or study this sort of stuff. We've never seen in such a short period of time just the balance of power change like that. >> Think about all the deaths in World War II and these horrible wars.

It was always a ground war. Ground war. That's when people die. And so, there's no more ground wars. >> But there hundreds of thousands people have died already in in Russia, you know, Russians in Ukraine. >> That's the because that was a ground war. So, in other words, you would never start a ground war now with with drone technology. >> about that. That's in 2 years. Uh let me ask you this, and I know we're kind of all over the place.

Um and I want to go back to jazz and blues for a second. Um most of the drones, the components that go into them, made in China. So, think about that, right? And and we know that the, you know, rare earths and the magnets and all that sort of thing. I mean, I don't know how that changes anytime soon. And is that something that, you know, should worry the hell I mean, we're we stopped We are in a standstill with Iran largely because we've run out of music munitions, you know what I mean, to some degree.

And it's those are some of the bottlenecks right now that just seem like inconceivable that if we are the strongest economy in the world and the most powerful nation that this is where we are. >> Yeah, but these are the mistakes we made over 30 years. It was outsourcing manufacturing and you know, raw materials. We said, "Hey, we'll give all the dirty stuff, all the dirty work to China. They're happy to do it." Yeah, but now they have monopoly on these things.

So, as you know, over the last year they've been working very hard to find alternative sources for rare earths in particular. And also just componentry, you know, like we we need to manufacture this stuff here. Semiconductors and other types of components that go into these drones and robots and factories that we're going to be building for the next century. So, that's the area probably where I'm the most bullish, you know, is in these rare earths and materials.

Those bottlenecks to me are they're going to be here for a decade. >> All right, so we have, you know, let's call it 4% unemployment, right? >> Yeah. >> Do Americans want to do those jobs? >> Which ones? >> Well, I mean, you just called it the dirty work, you know, from the >> dirty or environmentally dirty. >> Well, no, but I'm saying, okay, and I don't mean to denigrate working in factories making authenticators, you know, that go in drones, but like is it because we don't have the fabs here to do it and therefore it's not something a lot of people think about.

We know that what's happening like Detroit and you know, we've seen the gutting of a lot of that manufacturing over the last 30, 40 years. But is there any, you know, sort of confidence that if those sorts of jobs came back that Americans want to do them? >> Well, think about the factories that we're talking about today. These are not 19th century, you know, factories with a lot of robots in them. >> Think about the data centers, you >> There's going to be a lot of These are going to be more white collar jobs, guys running the factory, okay?

Yeah, there's robots and there's a lot of electronics and I got to manage the logistics of what's going on. A lot of computer work, quite frankly. Um so, it's not going to be as manual labor as perhaps some of these others. I've seen these videos recently of robots building homes now. Kind of crazy. >> Yeah. >> Like it it's kind of I mean I don't know how real that was, but like it's >> Like humanoid robots? >> Like a like a like your Tesla type yeah humanoid robots and they're like there's like a hundred of them you know doing the framing of a home and apparently it's you know it's it's happening.

So yes and that that's not a human job, but somebody still has to manage that that production. The more important the more important reason we want production here so we can control it. >> Mhm. >> Right? So we don't have to be held hostage to >> It's an international security thing. >> I think so and and then you know as you know and everybody all these guys say this and I agree with this which is this technology is going to lead to new jobs that we can't even fathom right now.

We don't know what those jobs are. By the way the whole space thing which I was kind of like yeah I don't know if that's really going to happen. >> Like data centers in space? >> Well no I'm actually kind of warm I think it's I mean I don't know if it's going to be full blown data centers, but we're going to have activity going on in space where there was just satellites for communication or for other uses. And you know the amount of people that are going to be required like humans to build the space economy.

Like the rockets going up, you know, basically building the the satellites that are they're sending up there in the first place. Building the robots, you know, I mean it's it's this is going to be like a decade of of kind of new growth. >> Yeah, you know it's interesting that you called the the space economy. So at the conference summer of 25 where I was hanging out with with Jonas um I met a VC a brilliant guy. I don't know if you know Lux Capital.

They're here they do a lot of defense investing. I think they were very early in Anduril and I met a partner there called Shaheen Farsey and he's in the San Francisco office and I used the term space economy. And he goes no. He's like it's just going to be the economy. And he goes think back to when people were calling it the internet economy and then it just became the economy. How's that? And this is kind of like this is kind of what you're saying in a way and so he's saying, "Well, the space economy is going to be the economy because all the things that you just said, all the capabilities that satellites and and you know, sending rockets into space and having them come back here is literally we're going to look back in 10 or 15 years, not too different, maybe 20 years, and say, 'Oh yeah, that was the that was the thing like, you know, in the late '90s, early 2000s.'" >> Yeah, material sciences, you know, and and and it is I mean you know, for all the skeptics and everything else, I mean, you think about it, it does make sense.

You get unlimited power from the sun that is like a giant, you know, nuclear reactor. And then you have natural cooling of space. Those are aren't those aren't those the two biggest >> I'm going to take the over on that, okay? And I'll tell you >> Over on which which one? >> On on both of them. Like like data centers in space. Like we can't even get back to the moon. Like we supposedly No, I'm serious. We supposedly went to the moon like, you know, 55 years ago.

You see what I said, supposedly. On the on the technology that was in like your T-100, you know, calculator or whatever. And so we can't get back to the moon. Like literally, it's it seems insane. So like I'm going to take the over on all of that. >> pretty crazy though what what Elon has done with the with the Falcon and and I mean like so so like we there have been incredible advances in the last 10 years because because the space program was dead for 30 years.

We didn't we didn't advance it. >> But isn't that interesting? So and I hope this never ever happens, okay? So Elon, I think on the SpaceX call, said the other day that they're going to have manned Starship flights in in a 2 year maybe I can't remember. By the end of '27, I think. >> Times two. >> Yeah. >> Yeah, exactly. >> But but like think about this. In our lifetime, we had two space shuttles blow up. >> Right. >> And it basically ended NASA.

To your point, you know what I mean? >> Space program. >> So so what would happen if there was a private, you know what I mean, space mission with with that was manned that blows up? I mean, like how much how much >> Well, does a manned does a manned mission like voluntary manned mission >> Yeah. >> Does that make a difference whether it's unmanned? >> I I don't know. And like the people die in the advancement of science and advancement of society.

I mean like there are accidents every day. >> at all the trepidation we have over, you know, accidents with AVs. You know what I'm saying? That sort of thing. Yeah. >> So, do you just give up on it? >> Well, there's a lot of regulatory, you know, activity around those sorts of things. And we have what? 50, 60,000 people I don't I I think the number die in, you know, car accidents. >> How many rockets has Elon blown up already? >> In the in the effort to get where he's got.

Well, I'm not I'm I'm not being critical. I'm just saying that I'll take the over and all that stuff. You know >> And time wise, I agree with you. It's going to take a lot longer. Just like, you know, self-driving cars. I think we're getting closer, but it took a lot longer than I think anybody thought or I thought. >> you know what's funny? Do they scale? Does anyone want to own the fleet? >> We don't know. >> Yeah, I mean I mean that's the thing.

You've been in Waymo's. I've been in Waymo's. It's literally one of the best experiences and, you know, in use of technology that I've ever had. And think about, you know, we have supercomputers in our pocket. I like it's such a better experience than 2007, my first iPhone. You know what I mean? It's like it's mind-blowing. >> This is going to be a segue. Maybe you like it, maybe you don't. So, I think it was in 1999 >> Yes. >> I saw BB King >> Okay. >> at the Blue Note >> Yes. >> here in the village.

Amazing. Okay? My My senior in college was just 1995. I had to take two classes my second semester senior year. I took a jazz and blues class. I did not I'm a huge music fan. I just didn't have a lot of exposure to each one of those genres. And I got really interested in it. Okay. I think I probably got a B plus in it or something like that. Um And then I saw which is the um the younger Marsalis? Wynton or Branford? I can't remember. >> I believe it was Wynton. >> Yeah.

Wynton Wynton Is it Wynton? >> Yeah, it's Wynton. >> Um and I saw him at the Village Vanguard. 7th Avenue in the village. Those two experiences were like just mind-bending. And so, going back a little bit to what you're talking about like AI music, it's those personal experiences. Like you can't love, you know, an AI avatar or this and that or whatever. And I You and I are in the same camp. Now, let's go back to 1999 cuz those were both 1999-2000.

See what I did there? So, you and I, and I think regular listeners know, we met, I think, in the late '90s. You were at Morgan Stanley, and you talked about the few different jobs that you had. You were a tech specialist. I think you were one of the first on the street. The first? >> Yeah, where we were basically they basically said >> you know, this is the internet economy, we need somebody following this sort of thing.

And you guys built an amazing practice. You had the best research analysts, you had the best bankers, you had the best trading desks, all that sort of thing. And you and I obviously met back then. What What was like let's just talk about from a sentiment standpoint, you know, that was an all-out mania. It feels very different to me now than it did then. And maybe it was I was new to the business, I was only in the business for, you know, 2-3 years or something like that.

Um, you know, let's just talk about like the fiber that was being laid in these companies that popped up to do it and circumvent it and the, you know, some of the financialization when it Think about how much smaller the VC, you know, universe was with the capital there. So, like how are you feeling about what's going now or going on now from a sentiment standpoint relative to back then? And let's just use some examples of the back then, also. >> Yeah, I would say the sentiment is similar.

Uh, like I mean, whenever people are making money, it gets a little, you know, people get excited, and that's what's been going on. So, let's give it Let's talk about the similarities first. So, this is just another big capital spending cycle. Um, I could say the same thing about fracking, by the way. Now, so but in the tech world, I think this is equivalent to the internet build-out, if not bigger, okay? It's much bigger than the cloud build-out, the data center the data center one.

Uh, and it's also bigger than the mobile build-out, which came with the iPhone. When everybody had to build out these networks, okay, fine. So, we're probably mid-innings. Okay? Now, stocks have a way of discounting later innings early. That's what's been going on, and as I talked about earlier, same thing, picks and shovels do the best initially. The spenders do well initially because it's like, well, they're going to obviously make money off of this, you know, it's incredible.

Look at the Look at this stuff they're building. It's It's awesome. And then ultimately, it reaches a point where it becomes revealed that now actually they overspent, they overbuilt capacity, and now they're going to have a pricing problem, and the returns aren't going to be there to service the debt. So, we're going to have some bankruptcies, we're going to have some stocks go down a lot. And then, the promise of the thing they built is going to be revealed because people are going to figure out how to use it and build incredible things.

So, we're like I don't know like year I wait is it '99 or '98? >> Yeah, I know I don't think that yet. >> I don't know. I mean, like what I would tell you is that we we we've had already three peak rate of change slowdowns in this buildout since ChatGPT started. Um the funding is far from done. The The bond market is still absorbing the high-quality offerings. The equity market is still absorbing the offerings for the spending on this stuff.

We're seeing a separation of some of the higher-quality, lower-quality neo clouds as well as LLMs as well as well as the semiconductor and other picks and shovels that are being produced. So, So, the market now is going to phase two, which is and that's probably in year terms like '97, '98. And we probably have another couple of years before I think we will then have a big hangover. So, I want to make it clear, and I've said this I've written this research, too.

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. But, I want to go back again to the '90s where uh our analysts who were, you know, making probably the most biggest, boldest, you know, prognostications about the internet usage and how much is this going to grow. So, for as bad as it was between 2000 and 2002 when the internet bubble blew up, every one of those estimates was off by like a factor of 10. >> Mhm.

Meaning it was bigger. And it was bigger because the marginal cost of that communication went to zero. And so that's how you should think about this cycle, is that they're building all this stuff. Elon is ultimate builder, right? He's going to build all this stuff in space, and maybe you're more skeptical than I am. And 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 And And that's That's the trajectory. And so what I'm really interested in now though is finding those early-stage companies that are already adopting and taking advantage of this technology in a way that is not priced in the stock. That That That's happening. >> you we kind of alluded them in in the prior segment. And you know, again, that was the story of the internet, right? And And again, there was, you know, this weird phase um for a bit where the disruption was being priced into a lot of these other sectors, whether you're bricks and mortar and that sort of thing, we're calling them old economy stocks back then.

And And a lot of those companies, you know, again, did exactly what you're saying. They benefited from the overbuild, the pricing collapse, and then, you know, being creative and figuring out how to disrupt themselves for all intents and purposes. So, where do you think that that just the early sort of use cases or the early examples of industries you talked about, you know, financials, healthcare, some of these other things, how do you think about from here on out, let's just say you're really bearish on the hyperscalers, let's just say you think the component suppliers are this, you think we're going to have a couple neo clouds blow up, and you're going to see this kind of down cycle, you know what I mean?

As you said, you don't know if it's a year or two, that sort of thing. Will there be companies that are immediately You've been talking about these kind of rolling recessions and rolling bull markets, and that has played out over the last few years. Where does the rolling bull market turn into if we see the pricing just go and and get squished, which we're already kind of seeing in token pricing in the like? >> Yeah, it's where the It's where the digital economy already exists.

So, like you're saying like let's not separate, you know, fintech from regular tech or you know, it's like or regular financials. So, financials is an area where I think you're seeing incredible efficiencies. Anything with a lot of data like the consulting firms, the IT service providers where you can commoditize these services. You can do way more kind of shots on goal. Like we've already seen that disruption. You know, even running a consumer company or a retail company more efficiently, understanding you know, remember just in time inventory.

Like all of a sudden it's going to be like it's going to be turbo-charged. I mean the things that we're doing now because we just got access to some of these plugins. I mean, like it these things are working way faster than my brain. And like my my sort of ability to see the market like ahead of >> Have you created a bunch of agents and and and basically it's making your like processes just so much more efficient cuz it's going out there and doing the scrolling, yeah. >> It's faster. >> it.

I mean, I think it's the most amazing technology by a factor of 10 relative to what I thought the internet was in the year 2000. >> Yeah. The the risk is of course is that, you know, it happened it's happening so fast that there's going to be an incredible displacement of people. Right? The the job thing is concerning. >> about this today, Chime fintech, right? Or it's up 30% after and they just with that announcement of the beaten raise, they're cutting 100 or 10% of the workforce. >> Right.

And that's So, that's the that's the challenge we're going to have is can we By the way, um when we did the outsourcing of manufacturing China right? We had an incredible disruption of the blue-collar workforce. And of course like on the coat I'm a Midwest guy, so >> Chicago, baby. >> this a lot >> Caleb. >> in and but I mean the the East Coast and West Coast were like, "What's the problem? It's great." And and now it's kind of revenge of the blue-collar jobs, right?

Because first of all, building these like you got to pay up for these jobs now, these skilled labor jobs which are very valuable. And so there's a there's a shifting now in the economy. >> It's not just the economy. Look at politically. I mean that it's been a seismic shift, you know, if you think about it. >> But that's not all bad because I think the pendulum has swung way too far sort of to these white-collar jobs, away from blue-collar jobs, and now there's a bit of a payback where, you know, white-collar wages are probably going to be somewhat suppressed.

And the blue-collar wage is they're growing 25 30% a year in many cases. And that's not a bad thing to me. So So where where is where is it going to be most evident? I think it's going to be most evident in areas that require uh What's the right word to use? Um uh intelligence that is that is not exhaustive. Like you you and I can only work >> So you mean like intelligent assistance? >> Intelligence in the lab. I just turned I just turned around the AI. >> Yeah.

Okay. [laughter] You can use that if you want to. In your next report. Do you want to use that or not? >> So I want to go back to to what we we So the one thing I left out which is important because this will maybe help us time the the cycle itself, which is in the '90s you know, there's a lot more debt being used. There were first of all there were a lot more spenders. Okay, there was all these telecom companies, cable companies, but then there was every enterprise was connecting to the internet.

Then every household was connecting to the internet. So you had a a much broader number of spenders building up. And and and that's why the hangover could have been, you know, a little bit worse. And it was also using debt. Up until about six last I don't know the last time I was here, but we were talking about how it was all equity-funded. >> Mhm. >> Now it's being debt-funded. The clock is now started. >> Hundreds of billions of dollars. >> is now started.

And so that debt is not is not trading poorly yet because we don't even the data center hasn't been built yet. So we don't know if they're economic or uneconomic. My point is the clock has started. Whereas a year ago the clock hadn't even started. So what I would watch as early warning signs is the credit markets. When the credit markets start choking >> Really tight right now, right? >> They're still tight. >> Yeah. mean particularly for the higher quality >> But, wouldn't you worry about the duration mismatch, right?

So, you know, I've been just obviously reading a bit about this, but when you convert a data center or you know, a large part of it from you know, Blackwell to Vera Rubin, it you have to retool like the whole thing. You know you know what I mean? It's not just So, there's tons of supposedly Blackwells just that have been purchased. They're just sitting in warehouses that have not been deployed yet. And so, this goes back to the Nvidia conversation in a way is like is that stuffing the channel?

You know what I mean? Because again, if you think that they're always going to be on allocation and you have to order, you know what I mean? Like one, two times ahead. I mean, that's what I suspect is going on with Nvidia, you know. >> That's why you're going to get these 30, 40% corrections and we just had one in memory of 60% corrections and and and you're going to get these corrections along the way. The question is is that the one that turns into an eight down 80 and then we stay down?

I don't think we're there yet. Um all right, we got to go to the show that Guy left for half an hour ago. Can I I want to end with one thing and going back to China for a second. So, if all of our companies here, okay, so you know, the big labs, you know who they are and all the hyperscalers, they're all spending trillions of dollars now. It's going to It's over a trillion. It's going to be multiple trillions by the end of this decade and they're all going for the exact same thing.

Right? We don't really is it AGI? Who knows? And it's ultimately going to be market share and it's going to be pricing is as how these companies compete. It's first going to be the neo clouds are going to start a pricing war, you know, throw Oracle in there. And then that's to me really how it ends like at one point in '99 or early 2000 like somebody stuck one too many banner ads on Yahoo.com and and that was it. You know, you didn't see it coming.

And so, when I think about like how we're beating our brains in with each other now with equity first, now debt and you think about China. So, it's the lowest cost capital, energy, labor, right? They have government subsidies obviously and to them this is an issue of let's call it national security for all intents and purposes or you know, regulatory environment very different. So, if they're using open source models, they're using, you know, different hardware, you know, and technology in general, they're innovating in a way that maybe we wish they weren't.

And I'm I'm not saying it's the innovation that you're seeing over here. At some point, doesn't this become you talk about misallocation of capital? Doesn't this become a huge issue for us at some point? >> Well, I think it's going to be an issue for this for the spenders ultimately. >> Yeah. But I mean >> But the spenders are huge part of A S&P earnings, B economic growth, that sort of thing. And so, that's why to me it has the ability to really broaden out dramatically. >> Yeah.

Well, look, once again, there is going to become a point where this is a there's a massive hangover, okay? So, I'm not sugarcoating this for the audience. I'm not here to say, yeah, there's not going to be >> No, and I'm not suggesting that you are, by the >> Yeah, yeah. But but I just don't think that we're at that stage yet where the like the markets are going to enforce discipline on these companies, right? So, we've shown this cap ex-to-sales ratio factor.

It was going straight up over last year. It just turned down at the beginning of June. It's one of the reasons why that has changed. So, the rate of change is so the capital discipline is going to cause them to curtail, which then puts pressure on the beneficiaries, the semi names, and some of the other beneficiaries of that spend short term. And then that it resolves and then they accelerate again until we have an excess period where computer is either too expensive and prices collapse because there's an excess.

But I don't hear that there's an excess of compute at the moment. That's not what we're hearing. We're hearing that there's a shortage of compute. >> Wait, but you know what? All right. So, this is where I take issue with that a little bit. It's just like everybody needs this to continue to work, right? So, if you think about this, right? If you think about the fact that OpenAI and Anthropic have not been marked down and they never will be.

But yet all of these other, you know, categories, whether they be software, memory, um you know, the semis, hyperscale, they've all sold off. I mean, you know, 30-some percent. If those were publicly traded stocks, they'd be down easily 30-40%. So, they have to keep raising equity, raising debt to buy the chips from Nvidia. Nvidia keeps, um, you know, investing in them, investing in all, you know, the the the the people in the ecosystem.

And so, everybody just needs it to continue to go, right? And that's one of the reasons why, you know, Nvidia's invested tens of billions of dollars over the last few years in their customers, basically. You know what I mean? They're backstopping their customers. And then we see, you know, as far as Open AI gives AMD a $300 billion order and they get warrants to own 10% of the company. The government invests in Intel.

Freaking Nvidia invested in Intel. You know, the list goes on and on and on. I think this has the potential to be a combination of the dot-com bust and the financial crisis wrapped up in one because nobody wants this hardware on their balance sheets. It It matters is exhibit A. Nvidia is exhibit two, by the way. They keep creating neo clouds for all intents and purposes so they'll buy their chips. And it just goes on and on and on.

And so, to me, I just think that a lot of folks are just kind of whistling past the graveyard. Think about all this private credit that's out there. I think it's 1.65 trillion right now that there is no transparency about, right? And so, I I just think that, you know, why do these, you know, alternative lenders, why do they trade the way they do? They trade horribly. You know, and the banks are lending to them. Banks rate great.

They're at all-time highs. So, I just think there's lots of disconnects and I think, you know, again, the one man that nobody trusts in Silicon Valley, Sam Altman, is the one that needs to deliver us to the homeland cuz it just can't be, you know, deliver us to the promised land. It just can't be Jensen Huang out there doing it cuz the market's not buying his thing anymore. >> Yeah. No, I think that's right. I think I mean, and this is a skepticism, but to me, the skepticism is healthy, right?

I mean like the derating we talked about earlier it is the markets aren't turning a a blind eye to this. In 99 2000 the multiples were going up the whole time, okay, at the very end. We haven't really had that period yet. We haven't had this period where you're getting revenue growth and multiple expansion. We're getting revenue growth and multiple contraction. So in that regard I feel like it's not going to be a crash until you get that crazy multiple expansion at the end.

So in other words we have corrections and we call them >> correction a couple times in the last few years. >> 10%ers, you know. >> wait and see you call the next one. I know you will. I mean like you're you're going to nail it. You're one of those guys. >> I'm never going to nail it but I'm not afraid to. In other words I mean I think at least listeners should understand like I'm not afraid. In fact I usually get, you know, tarred and feathered being too bad.

We we we go both ways. We're bullish or bearish. >> listen, regular listeners of our podcast, this is the 15th time you've been on over the last 5 and 1/2 years. They know I can't stand the headlines that a lot of strategists get because they say one thing on TV and it's like this moment in time yet they're not listening to what's under the hood, you know? And I hope that we've been able to amplify that with you. We do it with other strategists out there because we've been on the street a long time and it's really easy to take potshots from the cheap seats but it's another thing you talk to these smartest investors on the planet and they appreciate it.

They don't give a what your S&P price target is or anything like that and I think that's one of the biggest misnomers. >> Yeah. No, it's it's about engagement. Nobody knows the answers to these questions. That's why we have these discussions whether it's with you or a client or you know, my team. Like we're trying to figure these things out. They're very hard to know minute to minute day to day. All we can do is take our best shot at it and that's what we tried to lay out today.

I think this is a great conversation. Thanks for having me. >> appreciate it. I know our audience does. Mike, you're the man. I appreciate it and we'll let's go do Fast Money. I mean guys up there on the desk are already waiting for us. By the way, I just want everyone to know this. It is 4:20. We have to be on that desk in uh Times Square at 5:00. >> Let's run. >> Let's go. All right, bye everyone. >> This podcast is for informational purposes only.

All opinions expressed by me, Dan Nathan, Guy Adami, and any other participants are solely our opinions and should not be relied upon for specific investment decisions.