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Accenture Forecast Sends Stock Tumbling a Record 20% · Bloomberg Intelligence

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Speaker 2: I'm going to say a year maybe two years ago,
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Speaker 2: some tech analysts came in here and said, you know,
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Speaker 2: all these companies across the industries are spending a lot
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Speaker 2: on AI.
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Speaker 3: Mm hmm.
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Speaker 2: It's got to come from someplace that money. And he
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Speaker 2: highlighted one area that it's going to be hitting as,
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Speaker 2: which is some of these consultants out there. Let's pull
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Speaker 2: back on some of the money we're spending on consulting
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Speaker 2: because we have to invest in AI.
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Speaker 4: So it's not so much that they don't need their services,
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Speaker 4: it's that we're investing in AI, so we can hold
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Speaker 4: off on paying these guys.
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Speaker 5: Absolutely.
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Speaker 2: And I think in that analyst is Ana Rograna, Senior
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Speaker 2: Tech Analysts or Bloomberg Intelligence Honor. We saw Accenture today
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Speaker 2: give some guidance that really disappointed the street. The stock
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Speaker 2: is down eighteen percent year to data is down fifty
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Speaker 2: five zero percent. On a year to date basis down
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Speaker 2: fifteen percent today. What did you hear from Accentric?
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Speaker 6: I mean, to be honest, look at the carnage and
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Speaker 6: what they said was, you know, maybe one hundred hundred and.
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Speaker 7: Fifty basis points less growth for them.
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Speaker 6: I mean is this is really shocking because they talked
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Speaker 6: about it on They talked about projects being pushed out
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Speaker 6: into next.
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Speaker 7: Year and so forth.
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Speaker 6: And this goes into the thesis that you just repeated,
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Speaker 6: because at the end of the day, if you're going
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Speaker 6: to spend money, if an enterprise out of a corporation
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Speaker 6: is going to spend money on.
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Speaker 7: AI, where is that money going to come from.
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Speaker 6: You don't have budgets that are going to go up
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Speaker 6: fifty hundred percent. You're going to take it out from
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Speaker 6: the software bucket. You're going to take it out from
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Speaker 6: consulting bucket. You may not upgrade your PC. I mean,
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Speaker 6: it has to come from somewhere, and that's what we
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Speaker 6: are seeing right now.
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Speaker 4: It has to come from somewhere. And if it's coming
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Speaker 4: from software, it's coming from consulting. Does that mean that
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Speaker 4: the companies realize that they can get by just fine
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Speaker 4: without these consultants and they'll never need to go back
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Speaker 4: to them, or do they do the someths become something
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Speaker 4: that they just go to as needed on an emergency basis.
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Speaker 6: So Oka, over the last twenty five years, we have
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Speaker 6: seen this movie many times. It leads to a year
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Speaker 6: or so of anemic spending and then it bounces back
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Speaker 6: very strongly. The reason it bounces back is because you
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Speaker 6: cannot put those projects on hold forever. You need your
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Speaker 6: data cleaned up, you need your software systems upgraded, all
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Speaker 6: of those things. The thing that I was surprised by
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Speaker 6: in the Accenture earnings today is their headcounts still went up.
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Speaker 6: I mean, if there was massive AIA disruption going on
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Speaker 6: in that company, why would these guys hire any more people.
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Speaker 6: A company like Accentria has over seven hundred thousand people,
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Speaker 6: their nutrition rate is about fourteen percent, which means all
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Speaker 6: they have to do is not hired, and their headcom
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Speaker 6: goes from seven hundred thousand plus two that say six
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Speaker 6: hundred thousand, which is what you would expect when somebody
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Speaker 6: is being disrupted by AI. This is a classic case
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Speaker 6: of traditional spending not being strong and these guys getting
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Speaker 6: punished on it.
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Speaker 2: You mentioned software is another area that's under pressure. And again,
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Speaker 2: you know, you look at Salesforce, some of these names
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Speaker 2: that are down forty fifty percent.
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Speaker 5: How's the thinking on Wall Street?
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Speaker 2: Kind of evolving here on a rag about software broadly
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Speaker 2: defined as it relates in an AI world.
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Speaker 6: The thinking is very simple right now. Trading is led
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Speaker 6: by short term focused you know, you could say investors
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Speaker 6: or speculators, and the trade is very simple. They understand,
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Speaker 6: one hundred percent, go long semis and get out of
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Speaker 6: anything that is software or services related. We already heard
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Speaker 6: yesterday from even Apple that you know, memory prices are up,
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Speaker 6: and so micround is up again, you know, on that stuff.
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Speaker 6: So it's a very easy trade for people to see.
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Speaker 6: They can't see by what going to happen in three
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Speaker 6: years to software companies or consulting companies. Why bother being
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Speaker 6: in it when the trade is very simple in front
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Speaker 6: of you, Google is raising capital to invest more in
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Speaker 6: AI infrastructure. Let's stick with the semi trade. Let's slick
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Speaker 6: with the AI infrastructure trade.
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Speaker 8: Anra.
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Speaker 4: We got news this week that Medalia, which is a
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Speaker 4: private equity backed software firm, is being taken over by
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Speaker 4: creditors led by Blackstone Toma Bravo, its sponsors said it
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Speaker 4: wasn't going to inject fresh cash into the company.
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Speaker 8: Does this spill over in any way to the public market.
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Speaker 6: So this has been a story for you know, I
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Speaker 6: would say, not not just right now, but for decades.
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Speaker 6: When software companies lose their market share or are smaller,
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Speaker 6: they actually go to private equity, they raise debt, and
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Speaker 6: that's how they exist. Our argument is companies with leading
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Speaker 6: market share, you know, companies like Service Now, companies like
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Speaker 6: work tape, companies like SAP, they're still growing and they
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Speaker 6: have a commanding.
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Speaker 7: Market share in that area.
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Speaker 6: Somebody like a Medalia are honestly a blip when it
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Speaker 6: comes to the market share of the entire software landscape.
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Speaker 6: So it's not surprising those companies that are private they
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Speaker 6: are not growing, they're you know, a.
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Speaker 7: Lot of debt.
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Speaker 6: You will see a lot more issues on that spectrum.
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Speaker 6: For our side, when we look at the larger companies,
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Speaker 6: I think this risk is insulated from them.
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Speaker 4: Understood that, you know, the big software companies are a
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Speaker 4: class unto themselves. But if we're not seeing these software
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Speaker 4: companies see their valuations adjusted, meaning their owners are not
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Speaker 4: marking down the value of these companies when they eventually do.
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Speaker 8: Does that have any.
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Speaker 4: Unintended consequences on the publicly traded part of the software industry,
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Speaker 4: even if it's not the big names, maybe some of
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Speaker 4: the MidCap ones.
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Speaker 6: Yeah, they will all be getting butchered. I mean you
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Speaker 6: can even see today they're getting clobbered because of Accenture.
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Speaker 6: Because the whole risk is anytime you have a company
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Speaker 6: at this point that is not semis related or hardware
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Speaker 6: related and has to do with human capital, people just say,
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Speaker 6: you know, find an easy way to say, you know what,
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Speaker 6: they are going to get disrupted.
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Speaker 7: This is not a business I want to be in.
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Speaker 6: I would rather stick around to something that's tied up
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Speaker 6: with chips or servers.
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Speaker 4: I remember when not so long ago, everyone wanted to
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Speaker 4: be in software. You didn't want to be in hardware.
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Speaker 4: Hardware's it was a commodity business, right, no chip companies,
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Speaker 4: no big mainframe computers or anything like that.
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Speaker 8: Let's go into software. Recurring revenue.
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Speaker 5: Yep, exactly, recurring revel that that was the clean Hey.
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Speaker 7: So look at Accentia for that matter.
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Speaker 6: Yeah, exactly, it's about that, Like it's about what twelve
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Speaker 6: thirteen percent free cash flow yield I've never seen that,
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Speaker 6: you know, at least in the twenty three years I've
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Speaker 6: covered Accentia.
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Speaker 5: Let's switch real quick.
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Speaker 2: Intel shares sure after Trump says it has struck a
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Speaker 2: deal with Apple for chip deal.
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Speaker 5: What's going on there?
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Speaker 6: Yeah, we'd have to find out whether it actually happened
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Speaker 6: or not, because I haven't seen the release from the
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Speaker 6: companies at this point. Now, the question here is Apple
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Speaker 6: does make its own chip, It goes to TSMC to
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Speaker 6: get them made and it and then those chip is
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Speaker 6: has their custom chips have been a big story of
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Speaker 6: selling their max and their phones. Now, if they are
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Speaker 6: getting a little bit off, you could say backlog issues
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Speaker 6: because DSMC is really busy doing AI chips, they could
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Speaker 6: go to Intel. But the big question, which I don't
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Speaker 6: know the answer for out is is can Intel even
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Speaker 6: manufacture the chips for Apple at this point? Because this
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Speaker 6: is not something that you could just you know, it's
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Speaker 6: not like construction you can find another vendor. You need
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Speaker 6: to have that technology and those nodes in order to
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Speaker 6: fulfill the demand from some of the leading tech companies
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Speaker 6: like Apple.
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Speaker 9: Yeah.
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Speaker 4: To on Rog's point, Intel declined to comment. Apple did
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Speaker 4: not comment as well. But you know that's to be fair. Now,
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Speaker 4: Intel of course has this deal with the White House
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Speaker 4: very quickly here on rog where the US government is
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Speaker 4: the biggest investor. So even if it's not a lot
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Speaker 4: of chips, just a symbolic amount says something to the market,
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Speaker 4: doesn't it.
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Speaker 6: Yeah, but that's the case. But that's also could be
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Speaker 6: just driven by market forces. Right now, we really are
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Speaker 6: in a crunch that you can't get enough semis and
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Speaker 6: chips out in the market given the AI infrastructure demand,
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Speaker 6: so they will go anywhere they can find chips at
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Speaker 6: this point.
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Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
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8:20
Speaker 5: President Trump has a deal with Iran.
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Speaker 2: Shifting the focus to the straight of horror moves and
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Speaker 2: getting that open with So let's get a sense of
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Speaker 2: what's going on here under the hood. Wayne Sanders, he's
8:30
Speaker 2: a senior defense analyst for Bloomberg Intelligence. He's retired US
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Speaker 2: Army colonel. So we thank him, of course for his service. Wayne,
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Speaker 2: what do you make of this? I guess memorandum of understanding.
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Speaker 2: I think like we're inking a real estate deal here.
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Speaker 2: I'm not sure what's going on. Talk to us about
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Speaker 2: the Strait of Her moves? Can we can the Western
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Speaker 2: world really reopen the Straight of Horror moves?
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Speaker 9: Yeah?
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Speaker 10: I take it as a pretty good sign. Actually.
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Speaker 11: I think one of the biggest pieces the fact that
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Speaker 11: the Iranian press is involved in this and we have
9:01
Speaker 11: not seen any backlash yet from IRGC or anyone else,
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Speaker 11: meaning that the four headed hydra from Iran that you
9:08
Speaker 11: have to get all in place at the same time
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Speaker 11: to be able to move forward with an agreement.
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Speaker 10: We're actually seeing some of that movement.
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Speaker 11: So now as you start to see some movement in
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Speaker 11: the Straits and you're actually I think at this point
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Speaker 11: in time, it also allows for the military as they
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Speaker 11: start moving back from some of the blockade positioning that
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Speaker 11: they're in, they can move into his own defense while
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Speaker 11: still being able to very quickly maneuver back if they
9:31
Speaker 11: had to.
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Speaker 8: Wayene, where does Israel fit into all of this?
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Speaker 11: Israel right now, I see the next sixty days as
9:41
Speaker 11: being obviously very critical Israel is going to pressure the
9:43
Speaker 11: US as hard as they possibly can, especially when it
9:45
Speaker 11: comes to the nuclear richment program. President Trump originally said
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Speaker 11: no escalation in enrichment, and he backed off a little
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Speaker 11: bit about that in the MA where he's now talking
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Speaker 11: about low grade enrichment. So think three to twenty percent,
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Speaker 11: which is normally used in that civilian power projection power
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Speaker 11: production perspective, and you need ninety percent high grade ian
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Speaker 11: rich geranium for nuclear weapons.
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Speaker 10: So there's a very large gap.
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Speaker 11: However, at this point in time, Israel doesn't look at
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Speaker 11: it that way. Israel looks at any type of enrichment
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Speaker 11: is going to be used towards a military grade program
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Speaker 11: and therefore shouldn't even be started.
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Speaker 12: So I guess over the next sixty days, when the
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Speaker 12: US and RAN will try to agree on restrictions on
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Speaker 12: Tehran's nuclear program, what should expectations be here.
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Speaker 10: It's gonna be rough.
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Speaker 11: Honestly, I don't know whether or not they can even
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Speaker 11: do this in sixty days. I think that you may
10:41
Speaker 11: end up seeing an extension beyond that sixty day agreement
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Speaker 11: if going towards that, because they are so hardlined on
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Speaker 11: the both sides, I RAN needs to be able to
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Speaker 11: come back with a win and say no, we still
10:52
Speaker 11: have a nuclear program even if it is that three
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Speaker 11: to twenty percent. However, the Gulf States as well as
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Speaker 11: Israel is looking at this saying do we want I
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Speaker 11: Ran to have any type of nuclear capability even if
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Speaker 11: it is at the low end.
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Speaker 4: So if you were in the oil markets, Wayne, what
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Speaker 4: would you be watching for? What do you think you
11:10
Speaker 4: can kind of key off here?
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Speaker 11: I'm definitely I'm definitely not an oil expert, but I
11:15
Speaker 11: would say that I think right now both Iran in
11:18
Speaker 11: the US are looking at right now the replenishment of
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Speaker 11: stocks becomes a very key piece to this, and so
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Speaker 11: both sides have a very large positive upside right now
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Speaker 11: to allowing the strait to open, to be able to
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Speaker 11: alleviate some of that pressure. I think the key then
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Speaker 11: over the next sixty days, though while that starts, is
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Speaker 11: can we start reaching some of the agreements that the
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Speaker 11: longer term agreements ballistic missiles, the nuclear program, and easing
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Speaker 11: of sanctions, the other things that are in the deal.
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Speaker 11: Can all those things actually be solidified to the point
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Speaker 11: where both can return to their countries and say that
11:50
Speaker 11: we've won.
11:51
Speaker 4: Stay with us more from Bloomberg Intelligence coming up after this.
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12:12
Speaker 5: At a Reserve meeting, yesuay, that was pretty interesting.
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Speaker 7: DC.
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Speaker 2: Yeah, terse statement, pretty clear language from Kevin Wassh, the
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Speaker 2: new FED chair.
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Speaker 4: He's a gen X FED chair, so I feel like
12:24
Speaker 4: he went old school. He's bringing it back to what
12:27
Speaker 4: it was before the era of let's hold a news
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Speaker 4: conference after every decision. Let's overly communicate under Ben Bernanki
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Speaker 4: and Jenni Yellen.
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Speaker 8: And j Powell.
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Speaker 2: Let's talk to somebody who actually follows closely what the
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Speaker 2: Federal Reserve is doing. That would be one Irid Jersey.
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Speaker 2: I rememized your takeaway from the meeting yesterday. What did
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Speaker 2: your market tell you?
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Speaker 9: Wow?
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Speaker 13: There were so many takeaways, Paul, I'm not sure that
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Speaker 13: I could do just one. I think from a market perspective,
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Speaker 13: it was clearly that the committee has turned hawkish, and
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Speaker 13: and Kevin Worsh, surprisingly to some had basically let them
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Speaker 13: let that hawkishness linger out there because he didn't take
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Speaker 13: any of it back during the press conference. So you know,
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Speaker 13: the market is is now priced for a couple of
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Speaker 13: interest rate hikes, but then an interest rate cut, which
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Speaker 13: something is wrong. And this isn't a note we put
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Speaker 13: out this morning on the terminal which either the market
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Speaker 13: is the market's pricing for some risk of two hikes,
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Speaker 13: which is completely feasible.
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Speaker 6: Right.
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Speaker 13: I can lay out a scenario where the Federal Reserve
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Speaker 13: would do that given the inflation situation and how strong
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Speaker 13: the economy seems to be. But there's no chance I
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Speaker 13: think after that that they wind up cutting within a
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Speaker 13: couple of months.
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Speaker 9: Right.
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Speaker 13: It is one of those two things is wrong, And
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Speaker 13: I think ultimately the market has to figure out what
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Speaker 13: it believes. Is it going to be a slow, meandering
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Speaker 13: group of hikes or the is the Fed going to
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Speaker 13: hike and then hold rates out a somewhat higher level
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Speaker 13: for a while.
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Speaker 11: IRA.
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Speaker 4: One of the things I was super fascinated by was
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Speaker 4: Kevin worsh saying that he wants to let the market
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Speaker 4: price in new data and react to what's happening in
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Speaker 4: the economy, rather than try to price in what it
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Speaker 4: thinks the FED.
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Speaker 8: Will do in the face of new data.
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Speaker 4: Does I mean he wants a pure market reaction, but
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Speaker 4: does this pure market reaction then become an input for
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Speaker 4: the FED?
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Speaker 9: Well, I disagree. I mean it always has been right.
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Speaker 13: The FED has alreadys taken into account what is the
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Speaker 13: market pricing. I think he's I think he thinks and wrongly,
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Speaker 13: and I disagree with with him on this. The market
14:26
Speaker 13: has always right since I've been in this business since
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Speaker 13: nineteen ninety four. The market has always tried to anticipate
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Speaker 13: what is the Federal Reserve going to do? Now, you
14:34
Speaker 13: know that changed a little bit with the more communication
14:37
Speaker 13: because now instead of the market waiting for a meeting
14:40
Speaker 13: or waiting for you.
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Speaker 9: Know, the H four one.
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Speaker 13: Look, I remember getting the H dot four dot one.
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Speaker 13: That's the Fed's balance sheet. I used to get that
14:46
Speaker 13: off a fax machine so we could determine whether or
14:49
Speaker 13: not the Federal Reserve was easy or hawkish, right like
14:52
Speaker 13: you know so so. But we had to anticipate what
14:55
Speaker 13: the next move was going to be, and that's always
14:57
Speaker 13: what the market is trying to do. The market is
14:58
Speaker 13: trying to discount what those next moves are.
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Speaker 9: Now it became you know, easier.
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Speaker 13: To determine what they were going to do at a
15:05
Speaker 13: meeting because of all the FED speak, and you can
15:07
Speaker 13: take a preponderance and the whole mosaic of all that
15:10
Speaker 13: information that you could coalesce into what's the FED going
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Speaker 13: to do? But you still had you know, people try
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Speaker 13: to anticipate things even before you had all of this communication.
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Speaker 13: So I disagree with that idea altogether. And you know,
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Speaker 13: the FED always looks at things like inflation break evens
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Speaker 13: and you know what the market's pricing for hikes.
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Speaker 2: Or cuts for sure, Ira, I'm looking at the two
15:32
Speaker 2: year treasury and a ten year treasure because Lisa Bromost
15:35
Speaker 2: taught me how to do that, and I see the
15:37
Speaker 2: it's only like twenty eight basis points between the twos
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Speaker 2: and tens, and that's a lot less than it was
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Speaker 2: three months ago, six months ago.
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Speaker 5: What does that tell me?
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Speaker 13: Yeah, so what's gone on recently? Right yesterday you saw
15:49
Speaker 13: two year yields go up by you know, fourteen fifteen
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Speaker 13: basis points and the tenure didn't do very much of anything.
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Speaker 13: And then today you see the ten year rallying and
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Speaker 13: knowld's coming down while the two years is hardly doing anything,
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Speaker 13: I think that that's an acknowledgment that the Federal.
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Speaker 9: Reserve is going to be hawkish.
16:07
Speaker 13: You know, there was this fear going into Kevin Walsh's
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Speaker 13: first meeting that he was going to try to be
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Speaker 13: as douvish as possible because President Trump wants interest rates
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Speaker 13: to be cut and the like. But he acknowledged that
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Speaker 13: they want to get inflation down to two percent, and
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Speaker 13: you know, in saying that the market is now pricing
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Speaker 13: for the Federal Reserve to be somewhat more hawkish and
16:29
Speaker 13: be on hold for a little while. I think ultimately
16:32
Speaker 13: we probably will see us get back to maybe fifty
16:35
Speaker 13: basis points on that two's tens curve. But that's predicated
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Speaker 13: on my idea that the Fed's probably just on hold
16:41
Speaker 13: for the rest of the year, which is not something
16:43
Speaker 13: that the two year currently is pricing. The two year
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Speaker 13: is pricing those two interest rate hekes that we talked
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Speaker 13: about a little while ago.
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Speaker 8: So we talked about the politics of it all.
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Speaker 4: You know, what was fascinating as well was President Trump's
16:55
Speaker 4: response to the Fed's first rate decision under his new chair.
16:59
Speaker 4: Kevin Walsh basically said, yeah, it's possible the Fed might
17:02
Speaker 4: raise rates, it's all right, whatever, How do you interpret that? Ian, Well,
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Speaker 4: I'm so sorry that my mind is somewhere else.
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Speaker 13: I suspect that President Trump just you know, wants to
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Speaker 13: give Kevin Worrish at least a little leeway, you know,
17:18
Speaker 13: coming into the first meeting and trying to determine, you know,
17:22
Speaker 13: how to work, how we can work with the other
17:24
Speaker 13: members of the of the FMC. And I do think
17:27
Speaker 13: that the task forces that Kevin Morsh announced is kind
17:32
Speaker 13: of a more diplomatic way for him to, you know,
17:35
Speaker 13: first get a sense of what his colleagues are thinking.
17:37
Speaker 13: And secondly, I kind of influence things through these task
17:41
Speaker 13: forces and say, hey, we can't do things as we've
17:44
Speaker 13: been doing them, or I don't want to be doing
17:46
Speaker 13: things the way they've been doing them because they haven't
17:48
Speaker 13: always worked and maybe things aren't as cohesive as they
17:52
Speaker 13: can be. So so some of the things that might
17:55
Speaker 13: come out of that is like a change in the
17:56
Speaker 13: way that they think about inflation and the inflation framework
18:00
Speaker 13: is the two percent target?
18:01
Speaker 9: Correct? Is using the PC deflator the right measure? Right?
18:05
Speaker 13: So those are things that they're going to discuss, and
18:08
Speaker 13: the market may react either positively or negatively, depending what
18:11
Speaker 13: comes out of some of these discussions. And I do
18:14
Speaker 13: think that that Kevin Walsh is, you know, it's actually
18:17
Speaker 13: pretty smart. I mean, I'll give him a lot of
18:19
Speaker 13: credit for trying to work with his colleagues through this
18:22
Speaker 13: task force environment.
18:24
Speaker 8: Stay with us. More from Bloomberg Intelligence coming up after this.
18:31
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
18:35
Speaker 1: weekdays at ten am Eastern on Apple, Coarclay, and Android
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18:45
Speaker 2: Let's get a sense of where we're going on these markets.
18:47
Speaker 2: We've got a new FED chairman, we've got a new
18:50
Speaker 2: sheriff in town, it seems like. But the market's reacting
18:52
Speaker 2: well today. And Meletti joins us.
18:55
Speaker 5: She is the head of equity.
18:56
Speaker 2: Investments in all Spring Global Investments there in Milwaukee, Wisconsin. Again,
19:01
Speaker 2: pound for pound, the best money managers I find in Milwaukee.
19:04
Speaker 2: I don't know what it is out there, but they're
19:05
Speaker 2: pretty good.
19:06
Speaker 5: And thanks for.
19:07
Speaker 2: Coming in here today. I know you're going to the
19:10
Speaker 2: parade in a minute. What are you guys and what
19:12
Speaker 2: are your portfolio management teams? What are they doing here
19:15
Speaker 2: in this market these days?
19:17
Speaker 14: They are trying to remain calm and focused on their
19:21
Speaker 14: investment processes and what they do every day, and as
19:24
Speaker 14: you know, it's really hard to do that when the
19:27
Speaker 14: market seems to shift every day. In January and February
19:31
Speaker 14: look like a completely different market than March, and then
19:34
Speaker 14: April and May and even June now have been different
19:37
Speaker 14: as well. So again sticking to what they do well,
19:40
Speaker 14: and that's really focused on fundamentals.
19:43
Speaker 4: So how are you rethinking or maybe not at all
19:47
Speaker 4: your portfolio construction given what we heard yesterday, given this
19:50
Speaker 4: renewed focus on fighting inflation from the Federal Reserve under
19:54
Speaker 4: Kevin Walsh.
19:54
Speaker 14: Yeah, I mean I think we were pretty balanced in
19:57
Speaker 14: our views going into it in terms of, yes, there's
20:00
Speaker 14: a new chair directionally, are things going to shift dramatically?
20:04
Speaker 14: Probably not, And I think there was more kind of
20:06
Speaker 14: confirmation of that yesterday him really trying to establish his
20:10
Speaker 14: own credibility, probably with his cohorts. But I thought what
20:15
Speaker 14: was new and interesting are the task force the task
20:19
Speaker 14: forces that they've announced. I do think it's kind of
20:22
Speaker 14: time to think about the future. Are we looking at
20:25
Speaker 14: the right data sets all of those things, and I
20:27
Speaker 14: think he brings that to the table too, So I
20:29
Speaker 14: think there's still as strong independence the FED, no real
20:32
Speaker 14: reason to change direction.
20:34
Speaker 3: We're focused on obviously earnings, but also.
20:37
Speaker 14: Inflation, and I think that the inflation story will really
20:40
Speaker 14: give the shift of what happens longer term.
20:43
Speaker 2: And we're starting this market to get some just mega
20:45
Speaker 2: IPOs coming down. We had SpaceX, We're going to have
20:48
Speaker 2: Anthropic and open a probably in the fall. I guess,
20:53
Speaker 2: huge valuations, huge numbers of shares being issued.
20:56
Speaker 5: What does that tell you about the market. Is that
20:57
Speaker 5: a signal one way or together?
20:59
Speaker 14: I mean, you know, it does like look, it does
21:03
Speaker 14: give me a little bit of angst. Certainly lived through
21:06
Speaker 14: cycles like this before, and when you see that much
21:09
Speaker 14: capital being thrown into IPOs makes you feel a little uncomfortable.
21:14
Speaker 14: For certain I think what's different this time for me
21:18
Speaker 14: is fundamentals in terms of earnings and earnings growth continue
21:21
Speaker 14: to be really, really strong. And more importantly, they seem
21:24
Speaker 14: to be broadening out down cap, especially right so mid
21:27
Speaker 14: cap and small cap companies seem to be also increasing
21:31
Speaker 14: their earnings. And so if that is really the driver,
21:35
Speaker 14: I'm a little bit more comfortable but like, look, this
21:38
Speaker 14: AI spend, not all of the capital will be put
21:40
Speaker 14: to good use as we know, and there will definitely
21:44
Speaker 14: be a rocky road ahead.
21:45
Speaker 4: I think in a rocky road scenario, where can you
21:49
Speaker 4: go for shelter.
21:50
Speaker 14: Yeah, there's a couple of spaces that we're looking at
21:52
Speaker 14: that we think are interesting. You know, we've thought about
21:55
Speaker 14: this AI innovation cycle. We know how important it is,
21:58
Speaker 14: but we think the next phase kind of goes down
22:00
Speaker 14: into applying it at an enterprise level into different industries
22:04
Speaker 14: and that is creating some of the profit growth and
22:07
Speaker 14: earnings growth. So generally speaking, we like industrials that seems
22:13
Speaker 14: to be at a perfect intersection between the growth in
22:16
Speaker 14: AI spend and what's going on there, but also at
22:20
Speaker 14: the intersection of kind of reglobalization.
22:23
Speaker 3: So that's an area we like, especially.
22:25
Speaker 14: As you go down cap, the more MidCap names have
22:28
Speaker 14: less global exposure, so they tend to be a little
22:31
Speaker 14: bit more stable, and the valuation differences are you know,
22:35
Speaker 14: make it even more attractive.
22:37
Speaker 2: Smaller mid cap time to shine here, How are you
22:40
Speaker 2: thinking about that?
22:41
Speaker 3: It has been polling me.
22:42
Speaker 14: It's kind of been the quiet little winner this year,
22:45
Speaker 14: And yes, has it been pulled up by some of
22:48
Speaker 14: this AI spend.
22:48
Speaker 3: It certainly has. The thing I don't love about.
22:52
Speaker 14: It is we still see kind of they a low earnings.
22:57
Speaker 14: Quality factor continue to be really, really strong, and so
23:02
Speaker 14: the market seems to be not just focused on high
23:05
Speaker 14: quality companies in the small maty cap space, but also
23:07
Speaker 14: the companies that may not screen quite as high for.
23:10
Speaker 4: US and looking outside the US, which you know, people
23:14
Speaker 4: were reluctant to do it for a long time, but
23:17
Speaker 4: on a valuation basis, it's hard not to consider it.
23:21
Speaker 4: How are you thinking about the emerging markets? How are
23:23
Speaker 4: you thinking about the developed markets?
23:25
Speaker 8: And xus?
23:26
Speaker 14: Yeah, I mean I think the emerging markets, and Paul,
23:28
Speaker 14: you can attest. I think more than a year ago
23:30
Speaker 14: we were talking about it, and most of my career
23:32
Speaker 14: I spent obviously in the domestic markets, but you could
23:36
Speaker 14: see the interest level. But more importantly, the fundamentals really
23:40
Speaker 14: start to shift last year, and we just published our
23:42
Speaker 14: mid year review this week. We came into twenty twenty
23:46
Speaker 14: six believing there was a lot more room to run
23:48
Speaker 14: in em That has been the case and we believe
23:51
Speaker 14: that will be the case to the rest of the year.
23:53
Speaker 14: And it's yes, some of it's tied to the AI spend,
23:55
Speaker 14: but also some of these emerging market countries have really matured,
24:00
Speaker 14: are much more stable than they were before. And the
24:03
Speaker 14: biggest factor is there's only five percent of global AUM
24:09
Speaker 14: devoted to the space. The average over a long period
24:12
Speaker 14: of time has been seven percent, And so if that
24:15
Speaker 14: just rises a little bit, it could be five hundred
24:17
Speaker 14: billion in investments yet to come. So we think it's
24:20
Speaker 14: still an attractive area to be especially relative to the US.
24:24
Speaker 2: And And I've been in this investment game for thirty
24:27
Speaker 2: forty years now, And how do you think about this
24:30
Speaker 2: AI story?
24:31
Speaker 9: Just broadly.
24:31
Speaker 2: We've been through internet cycles before, We've been through great plans,
24:35
Speaker 2: I mean, telecoms. I mean, how does this ring for you?
24:38
Speaker 5: Yeah?
24:38
Speaker 14: I mean, look, this is probably the most innovation I've
24:42
Speaker 14: seen in my lifetime on apps and just you know,
24:45
Speaker 14: the markets. But I am a big believer. Our investment
24:50
Speaker 14: teams are big believers in it. We're using it already
24:53
Speaker 14: in our business. I only have a little bit of
24:57
Speaker 14: angst on this solid foundation we have right now, including
25:01
Speaker 14: the fundamental the earnings growth and other things that we
25:04
Speaker 14: have with it. I worry do we have another deep
25:07
Speaker 14: seek moment? Do we have another kind of black Swan
25:11
Speaker 14: moment that just triggers a reversal of some of the
25:17
Speaker 14: glory that the space has had. So again, I fundamentally
25:20
Speaker 14: believe that this is real. Have we gotten a little
25:23
Speaker 14: over excited and a little too narrow focused on just
25:26
Speaker 14: AI in the markets?
25:28
Speaker 3: I would say probably. Yeah.
25:31
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