Latest / ausbiz a.m / 27.10.26 David Walsh, Sarto Advisory
Transcript
- nadine: Good morning to you. It is the 27th of October, and it's set to be a pretty interesting session here locally. At least lots of chatter about what was unveiled on Wall Street overnight. Wall Street actually bounced. So we saw the SP 500 and the Nasdaq both climbing, snapping two straight weeks of losses at least. One headline did most of the heavy lifting, and that was anthropic filing for an IPO. So that Helped to reignite the AI trade with chipmakers surging. The Philadelphia Semiconductor Index, I'm sure you've heard lots of people referencing that lately, was up by 3.5%. Easing oil prices, I guess, also helped the mood as well. Not all was well. The VIX did creep up, so that's the volatility index. So there's still some nervousness around. But I think that, and we'll talk about this with my guests, that anthropic filing, that S1 with the SEC, targeting a stock market debut as soon as November 16th, with a potential valuation of up to $2 trillion. That would make it, I'm sure you've read the headlines, the largest IPO in history. Let's bring in my guest. Less of me, more of him. David Walsh David Walsh: Thank nadine: from Sarto Advisory. Good morning to you. David Walsh: Good morning Nadine, how are you? nadine: I'm fine, thanks. Look, let's just go right to it. What do you make of this anthropic IPO? Because David, it's worthwhile mentioning that over ninety percent of the prospectus was actually addressing risks associated with the business. David Walsh: Yeah, yeah, look, there's a lot to go through these these documents and they're small. And we're just watching the analysts that we we know and who are very across the sector go through it all a lot of focus in the things that I'm looking through at the moment is the the cadence of the revenue growth. And of course, the capex and things that they're projecting from there. first half revenue was 16.3 billion. Obviously it's grown rapidly from, low revenue only a year ago. So it is growing rapidly, but then as you rightly point out, all the risks and the CEO has clearly spoken about this and the risks around AI in general as part of his message to regulators. So it'll be interesting to see. how this IPO process goes along and then of course where they, and importantly, where they're going to price the company. nadine: Well, David, I won't hold you to this, because you're obviously in the information gathering stage as we all are, and there are just so many unknowns, but on first first thought, is it something that you would want to participate in? take your clients out of it, just you. David Walsh: Look, I think the product is amazing. And generally, when you have an amazing product, that is something that is of interest to me. And I know that we've talked over the years about many. companies with amazing products that build boats around it. We've talked about Amaze and Ferrari and things like that, but this is a tech product and I know there's competitors out there and some of them are even free. So that's the competitive thread is the bit that we have to work through and then the value, like what are we paying nadine: Mm-hmm. David Walsh: for this amazing product? So. I really am interested. We know that our investments in Amazon have a large stake in Amtropix. So we're really paying a nadine: Mm. David Walsh: lot of attention here. nadine: we've got some really big tech earnings coming this week and some news as well, with Microsoft looking to shed sixty thousand jobs to right size its David Walsh: Yeah nadine: workforce for AI. So there's still a lot of commentary that we're gonna be looking out for in these results, aren't we? David Walsh: Absolutely. And we woke up to that news and looking at the redundancies at Microsoft, that's a really big number. And that seems to be accelerating across the market at the moment. How this, you know, all of this CapEx has to be paid for in some way or another, and you hope it's in rising revenues. But there will also be some cost rationalizations through that. I know that we've seen headlines here in Australia, especially around the banks with redundancies coming through. it's going to be a big story, I think, through these earnings. we will. This week is enormous. As you pointed out, we have so much of the world's market cap reporting, obviously, the hyperscalers, Microsoft, Google and Amazon. We also have a lot of the AI infrastructure chain, all the memory companies, other other chip equipment companies reporting. So it's going to be huge. And then the forgotten stocks or amazing companies that are MasterCard and Visa will be reporting in and they've just been, they've been on a tear this month as the rotation happens out of semiconductors into other parts of the economy. So it'll be interesting to see. their earnings update, they're nearly at all time highs, so they've had a good run and so nadine: Yeah. David Walsh: confirmation. nadine: So do you look to take some profits in any of those names that you like American Express reported and while its results did beat expectations, it did show slowing that indicated David Walsh: Yeah. nadine: perhaps the consumer is starting to feel a little bit of a pinch because I mean that's one sort of pillar of what's been holding up this market. Earnings, yes, but also we haven't seen a big turn in US consumer activity. I'm not talking about confidence, I'm talking about activity. So yeah, how David Walsh: Yeah, yeah, nadine: do you view those stocks? David Walsh: yeah, look, you wouldn't be allocating to them up here. They're a good three months ago when no one wanted to know them. At their last earnings report that we saw was showing good strong growth. But so up here, you wouldn't be adding to them at this point. but we'll just have to see what they say. mean, they've got such a robust business that can grow and they continue to drive penetration and add new products. mean, part of their growth of MasterCard and Visa in these new businesses that they're tacking on and new services are growing at 30%. So they've got a lot of levers, but you're right. There is a two speed consumer economy. wouldn't surprise me at all to see some of their... transaction volume was lower. So we're watching and waiting on those ones. There's other things that have been completely beaten down that we're picking over for new allocations. nadine: we heard from yet another RBA official yesterday. you know. Continuing to warn about the homegrown inflation problem here. We've got David Walsh: Mm. nadine: an interest rate decision coming on Tuesday. a David Walsh: Mm. nadine: sixty percent chance of a rate hike being priced in when the RBA meets. Does that sound right to you? David Walsh: Yeah, Yeah, that's the that's the expectations that we have that Melbourne Cup Day next week, there's a 60 % chance that rates will be going up. And we know the cash rate is currently at 4.6. And if we look out, you know, the markets seem to be pricing that in the bills rates and the deposit rates. So we'll wait and see. But yes, the the the rhetoric is strong from from the RBA that inflation is the problem. nadine: Mm-hmm. just to wrap it up, David. we've got a lot of bottomed or should say bombed out stocks. I don't know if they've hit the bottom David Walsh: Yeah. nadine: when you look at the likes of Next DC and two ass, obviously headline driven. David Walsh: Yeah. nadine: but there are s quite a few say small caps that must be looking interesting. I mean, are there any of these bombed out stocks that look good to you? David Walsh: Yeah, and next CC, obviously there's an event around the problems with the project expansion and then 2S has got that huge regulatory overhang. We know those and we're watching them, but we're not that interested in them. Where we're looking at the moment is still in the bombed out software, the old names that used to be our growth sector of... WiseTech and Zero, they're just not participating in the global software rally. We've seen the software sector be an outperformer in recent months globally, but there's still lot of skepticism around these stocks. We won't get half year earnings from them for a little while, but we are looking for updates there to show that they are. still a growth company and so they're the ones that we're looking at. I wouldn't call them small cap, they're sort of mid to large cap, but gee, they haven't kept up with the recovery that we've seen in other software sectors globally. nadine: Dave, would you just steer clear of Ozzy small caps as a rule? David Walsh: what we do, we, you know, we're in the fortunate position that we can allocate to, you know, smart managers there. So we do do that, but no, we do our own direct, small caps. We're looking at, Rivco, which is the listed water company, at the moment it's been through a restructure. Trading on a large discount to NTA. So we, we do. at the moment, you know, there is globally, is a their market in small caps. So we are looking through that market for value. Because of the index buying the passive money, these things can get really, what's the word, they can have no clear owners for a long period of time, so it can drift away. there is value there. Some of the managers that we're close to and we invest with, we're talking to them more frequently at the moment. So there's a lot to do. nadine: Alright, just asking for a friend. look, thank David Walsh: Let's try. nadine: you so much for joining us today. It's always great to get your thoughts and your global David Walsh: My pleasure. nadine: view as well. so for those of you listening, it's not a big day on the data front. we are all hanging out for the inflation read that comes tomorrow, which will be instructive when it comes to whether or whether we do not have an interest rate hike come next Tuesday. we'll be watching everything on osbiz dot com dot AU, bringing it to you. so yeah, final thanks to you, David Walsh from Sarto Advisory. David Walsh: Thanks, Nadine. Have a great day and we'll see you soon. nadine: You too. All of you have a good day out there. We'll see you tomorrow. David Walsh: Good luck.