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AI Can Transform Markets But Investors Need Proof · Money Matters with Greg

• 0:01
  SPEAKER_01: Welcome to Money Matters with Greg, where we dive into the money conversations shaping your life.
• 0:08
  SPEAKER_01: From investments to estate planning, insurance to taxes, we cover it all with a fresh perspective.
• 0:14
  SPEAKER_01: Join Greg and his guests each week to get inspired and take control of your financial future.
• 0:20
  SPEAKER_01: Let's get started.
• 0:22
  SPEAKER_01: Securities and investment advisory services offered to LPL Financial, a registered investment advisor, member PinRES IPC.
• 0:59
  SPEAKER_00: Broadcasting today on WVLP103.1 FM.
• 1:03
  SPEAKER_00: Excited to be here today.
• 1:04
  SPEAKER_00: The show's about money.
• 1:06
  SPEAKER_00: As we talk money matters with Greg here, uh it's episode 192.
• 1:11
  SPEAKER_00: And today we're going to talk about AI and how it affects our lives.
• 1:15
  SPEAKER_00: And also trying to help investors figure out a way to be able to sort of realize exactly some of the valuations of some of these AI stocks and how AI is affecting the investing world as we've seen many, many different uh industries sell off everywhere from the grid to multiple different companies that have invested heavily in AI recently.
• 1:37
  SPEAKER_00: So just want to talk about that as far as uh what's going on in the modern world, a little bit of house cleaning first.
• 1:42
  SPEAKER_00: Uh again, the show's Money Matters with Greg.
• 1:44
  SPEAKER_00: We talked money on this show.
• 1:46
  SPEAKER_00: We talk uh with a number of guests that have uh been on, have an expertise in finance to real estate, to mortgages, to anywhere where we can help you save some money, ultimately invest your money, grow your wealth, and protect your wealth, distribute your wealth in life, and distribute your wealth after death.
• 2:04
  SPEAKER_00: So those are the four quadrants of the wealth management firm that we live on, and uh certainly uh how we built the business managing clients for uh managing clients in twelve twenty-five states now.
• 2:17
  SPEAKER_00: And a very virtual company that we have with assistance all over the nation and but locally based here in Valparaiso, Indiana.
• 2:24
  SPEAKER_00: It's this great little town that we have as a Norman Rockwell charm that uh we have.
• 2:28
  SPEAKER_00: We have a uh a lot of things going on around here.
• 2:31
  SPEAKER_00: We've just recently had a massive storm.
• 2:33
  SPEAKER_00: We all basically ran to the basement of our uh respective places, just had a big storm come through here in Chicago.
• 2:39
  SPEAKER_00: Thoughts and prayers are out to everyone that was affected by this uh tornado and this twister that kind of uh basically came through Tinley Park and Appleton, Wis Wisconsin was hit uh pretty severely too.
• 2:51
  SPEAKER_00: So I know a lot of people are still without power, and our thoughts and prayers are with you uh as you hang tough.
• 2:57
  SPEAKER_00: Hopefully everybody's safe and uh you're doing okay.
• 3:00
  SPEAKER_00: We're broadcasting today at 103.1 FM, V VLP or locally.
• 3:03
  SPEAKER_00: It's at one o'clock on Thursdays, and then also broadcasts at three o'clock on Saturdays.
• 3:08
  SPEAKER_00: That's Central Time.
• 3:09
  SPEAKER_00: So tune in at WVLP.org.
• 3:11
  SPEAKER_00: Also check out the website with multiple different shows.
• 3:15
  SPEAKER_00: Uh we have a wonderful WVLP family with lots of different genres and lots of different things.
• 3:20
  SPEAKER_00: Some great people that know their music, play great music, as well as some great talk shows.
• 3:25
  SPEAKER_00: And hopefully, this is one of them.
• 3:27
  SPEAKER_00: I appreciate you listening today.
• 3:29
  SPEAKER_00: We have uh listeners listening in from everywhere across the nation and across the world.
• 3:33
  SPEAKER_00: As you can find this on TuneIn Radio and also anywhere you pod.
• 3:38
  SPEAKER_00: We broadcast this as a pod on Apple and Spotify and anywhere else you pod.
• 3:43
  SPEAKER_00: You can also find us at Feralwealth on any of our socials, and would love to hear from you in regards to ideas in the show.
• 3:50
  SPEAKER_00: Just email me directly, Greg at Farowealth.com, and uh certainly would be in touch.
• 3:55
  SPEAKER_00: I'd love to be able to know some of the things you think about the show, then also ideas, uh topics you want me to cover as we uh as we grow this out and hopefully hit 200 episodes or you know, 2,000.
• 4:06
  SPEAKER_00: So but uh thanks for being here today and really just want to talk about the modern world.
• 4:10
  SPEAKER_00: You know, in this modern world that we're in, you know, computers and cell phones have basically become everyday necessities that are expected to simply work.
• 4:20
  SPEAKER_00: You know, turn it on, it's supposed to work.
• 4:24
  SPEAKER_00: It's supposed to connect.
• 4:25
  SPEAKER_00: And I don't think necessarily everybody realizes just how much goes into the connectivity that makes our our uh everyday necessities just work.
• 4:34
  SPEAKER_00: So, you know, there's an unbelievable complexity behind not only all the engineering that makes all of this possible and life possible, but also the supply chains that allow millions of devices to be manufactured.
• 4:49
  SPEAKER_00: All the different devices have lots of little screws and lots of little um computer boards uh that need to be assembled to all go in the right place so you can have your phone work or your garage door opener work or whatever it might be.
• 5:04
  SPEAKER_00: And sim, you know, similar to that, the artificial intelligence world AI may seem simple when you use it as a chat bot, chat GPT, download the app, you know, log in, suddenly it just works.
• 5:19
  SPEAKER_00: You can talk to chat, ask questions.
• 5:21
  SPEAKER_00: And there's a very complex value chain that allows anyone with a device to access capabilities uh that would have seemed like science fiction just less than a decade ago.
• 5:33
  SPEAKER_00: And this has made a huge generative AI and large language models, or called LLMS, one of the most important themes driving financial markets in the economy, as we really need to, as investors, digest how we can gain from all of this.
• 5:52
  SPEAKER_00: How can we own the stocks that we want to be able to own that are going to do the best and give us the best return, give us an opportunity to be able to, again, grow our grow grow our wealth and ultimately we can worry about protecting it later.
• 6:04
  SPEAKER_00: But this also means that you know it's really important to have a sort of a broader view of AI that goes beyond just a few technology stocks.
• 6:13
  SPEAKER_00: And that's really where I want to go to today, because as I mentioned before, many of the stocks have sold off.
• 6:19
  SPEAKER_00: And so what what's going on is basically the the question I'd like, you know, like to try to answer.
• 6:25
  SPEAKER_00: So while there's little doubt that the AI, that AI is transformational, I mean, it really is, it just remains difficult to kind of forecast the demand or determine how it's going to affect businesses, workers, and productivity in the next years ahead.
• 6:40
  SPEAKER_00: For investors, this uncertainty really can make it difficult to value companies and sectors and overall the overall stock market as a whole.
• 6:47
  SPEAKER_00: So, how can investors better understand AI's impact while maintaining a long-term perspective?
• 6:53
  SPEAKER_00: Is really what I want to try to answer.
• 6:55
  SPEAKER_00: And then the entire so the entire AI supply chain, we're gonna we're gonna talk about how investors, let's just go back to that, how investors can better understand AI's impact while maintaining a long-term perspective.
• 7:08
  SPEAKER_00: So the entire supply chain is really has been supporting many different markets.
• 7:13
  SPEAKER_00: One of the most insightful for investors is that AI is not a single type of investment.
• 7:19
  SPEAKER_00: Now, while it's natural to think that of the model providers that you hear about at the heart of these capabilities that you talk that you use, such as OpenAI, Anthropic, Google, and Grok, and more, they only represent one small piece of the puzzle overall.
• 7:37
  SPEAKER_00: And there's a full supply chain that covers a range of activities, industries, business models, each with its own characteristics and risk that include hardware, data centers, of course, software providers, and many more.
• 7:50
  SPEAKER_00: And really the foundation is the semiconductor hardware that makes all of this possible.
• 7:56
  SPEAKER_00: So there are two stages where hardware like GPUs and memory chips are needed.
• 8:02
  SPEAKER_00: The first is model training to build LLMs, and that's a process that uses huge amounts of data across thousands of connected servers, taking weeks or months to complete.
• 8:13
  SPEAKER_00: And the second is known as inference, which is the actual use of these models by today's individuals and businesses.
• 8:21
  SPEAKER_00: Now, each prompt requires computational and memory resources to generate an answer.
• 8:28
  SPEAKER_00: And the combination of training and inference is why demand and prices for this hardware has surged, and of course, leading to higher market valuations.
• 8:38
  SPEAKER_00: So over time, this hardware needs to be scaled up to meet demand because everyone wants it.
• 8:45
  SPEAKER_00: And this is where data centers come in.
• 8:47
  SPEAKER_00: So imagine a data center as large as a large warehouse packed from floor to ceiling with servers.
• 8:52
  SPEAKER_00: Now these machines run 24-7, requiring security, electricity, and cooling.
• 8:57
  SPEAKER_00: And altogether, these represent the enormous resources devoted to making AI applications even possible.
• 9:04
  SPEAKER_00: Now, the spending on data centers has become a significant contributor to economic activity.
• 9:09
  SPEAKER_00: Not only have many tech companies benefited, but also infrastructure companies like Caterpillar and John Deere and a number of others that you have to be amazed at the different things that are necessary.
• 9:22
  SPEAKER_00: And so the chart that I ultimately am going to put on my blog.
• 9:26
  SPEAKER_00: So you can find our blog at fairwealth.com.
• 9:29
  SPEAKER_00: And ultimately this will be on the YouTube channel too.
• 9:31
  SPEAKER_00: Is it shows the amount of spend on data center construction that's not including the IT hardware?
• 9:39
  SPEAKER_00: So it's clear that spending has accelerated since the launch of ChatGPT in late 2022.
• 9:44
  SPEAKER_00: And it's really has surpassed all types of office construction today.
• 9:49
  SPEAKER_00: So you're really seeing very little being invested in office construction, but it's all going towards data centers.
• 9:55
  SPEAKER_00: And it's also important to note that not only is all of this growth is strictly due to AI, general adoption of technology and automation, especially since COVID in 2020, have also led to a greater demand for computational resources on a number of different fronts that aren't necessarily even AI.
• 10:12
  SPEAKER_00: But finally, there is the use of AI by businesses, both internally as well as this new AI application by software providers that you use.
• 10:22
  SPEAKER_00: And at the moment, this really perhaps is the hardest to evaluate since it depends on how effectively a company can turn AI capabilities into productivity gains and product enhancements.
• 10:33
  SPEAKER_00: As an investor, you're really looking for the management of the company to show you how they are being more productive, how are they showing, how are they getting you a return on your investment for any investment that they're making in artificial intelligence.
• 10:47
  SPEAKER_00: And so, for instance, for instance, how AI interacts with existing software, it's very important.
• 10:54
  SPEAKER_00: Whether these companies will evolve has been one source of the market uncertainty over the past year.
• 10:59
  SPEAKER_00: Now, I was a trader in the pits during dot com boom and did a dot com bus, and I saw a lot of price versus earnings valuations that were goofy, crazy.
• 11:09
  SPEAKER_00: Ultimately, they turned in, they went to zero.
• 11:11
  SPEAKER_00: So I have the experience for sure of watching stocks go from zero to a hundred to a thousand and back to zero pretty quickly.
• 11:18
  SPEAKER_00: And for really for no rhyme or reason, other than the fact that they didn't execute.
• 11:22
  SPEAKER_00: And so that's really what the market's telling us today is you know, we're willing to listen as investors, we're willing to see, but you're gonna have to prove it that the investment that you're currently using and investing in is gonna pay off.
• 11:36
  SPEAKER_00: And I think that's really what investors are weighing, whether these large investments are gonna pay off.
• 11:42
  SPEAKER_00: So a central question facing investors right now is whether the hundreds of billions of dollars that have been spent on AI infrastructure will eventually generate some significant or sufficient returns.
• 11:52
  SPEAKER_00: And this is challenging due to the scale of these investments.
• 11:55
  SPEAKER_00: Now, from the largest technology companies, even to the smaller ones, you there's accountability.
• 12:00
  SPEAKER_00: And on the one hand, the demand for computing power to train and run the AI models has been absolutely substantial, supporting the companies that provide hardware and the data center capacity.
• 12:11
  SPEAKER_00: And then on the other hand, as models continue to improve, they may also become more efficient, potentially requiring less computing power for a given task over time.
• 12:22
  SPEAKER_00: And this uncertainty really helps explain some of the volatility of the AI-related stocks recently.
• 12:27
  SPEAKER_00: As another chart I'll show up on the blog, you'll see the megacap technology stocks have experienced strong returns over the past several years, but with large swings.
• 12:37
  SPEAKER_00: And since it makes it takes time to build new data centers, periods of this optimism about infrastructure spending have been followed by periods of concern, which is what we're going through right now, about whether there will be sufficient demand.
• 12:52
  SPEAKER_00: And it certainly seems like there's enough demand.
• 12:54
  SPEAKER_00: Real quick, just to mention, again, and station identification, we're broadcasting today on WVLP103.1 FM.
• 13:01
  SPEAKER_00: The show is Money Matters with Greg.
• 13:02
  SPEAKER_00: I'm Greg Farrell, CEO, owner of Ferrell Wealth.
• 13:05
  SPEAKER_00: It's a wealth management firm.
• 13:06
  SPEAKER_00: We're all financial advisors at the firm, fully licensed and helping clients in 25 states.
• 13:11
  SPEAKER_00: So if there's any other questions that you ever want to join in on some of the things that, you know, we talk about on this show in regards to wealth.
• 13:18
  SPEAKER_00: Today, we're talking AI and the AI investments that have been the talk of the town, the talk of clients for sure, uh, for at least the last three years.
• 13:27
  SPEAKER_00: And since early 2025, for example, investors really have been worried about more efficient AI models than might mean less computing, if might mean that the less computing power is required.
• 13:39
  SPEAKER_00: But, you know, history shows that the efficiency gains that come with new innovations.
• 13:44
  SPEAKER_00: If you go all the way back to Henry Ford, you know, he didn't necessarily invent production in the way he did, but he did streamline it and uh ultimately made things extremely much more efficient.
• 13:54
  SPEAKER_00: And that's basically just an example that with new innovations does not always reduce overall demand, but a phenomenon that's commonly referred to as Jevons paradox.
• 14:07
  SPEAKER_00: That is the situation where you think or you certainly assume there will be less demand on something as it gets more efficient, and that's just not necessarily the case.
• 14:17
  SPEAKER_00: In some cases, cheaper and more capable technology leaders leads to broader adoption and completely new use cases.
• 14:26
  SPEAKER_00: Again, there are no more buggy whip production facilities.
• 14:30
  SPEAKER_00: The buggy whip was long gone a long time ago.
• 14:33
  SPEAKER_00: So for instance, electricity today is not just for light bulbs, and computers are not just for large companies.
• 14:40
  SPEAKER_00: You have them as an an investor and as a as a just a person of society, whether you have an Apple Watch or whatever it might be.
• 14:48
  SPEAKER_00: It could be in your microwave, your car, your mower.
• 14:52
  SPEAKER_00: I mean, you can go on and on and on, your sweeper.
• 14:55
  SPEAKER_00: And at the same time, markets have a long track record of overestimating the speed at which these new technologies generate profits.
• 15:03
  SPEAKER_00: Back to the dot-com boom and dot-com bust.
• 15:05
  SPEAKER_00: Back then, all we had was price.
• 15:07
  SPEAKER_00: We had no earnings.
• 15:08
  SPEAKER_00: Now at least we have earnings and we have price.
• 15:11
  SPEAKER_00: And right now the prices are getting hit because the earnings are being questioned.
• 15:15
  SPEAKER_00: And even with this long-term potential of generating profits, uh, you know, the situations are real.
• 15:20
  SPEAKER_00: And investors want accountability.
• 15:22
  SPEAKER_00: Um the info the enthusiasm investors showed for internet stocks in the late 1990s and early 2000s, that took decades to play out.
• 15:31
  SPEAKER_00: And that is this is why it's important to maintain not just a broader perspective on the companies involved in AI, but also long-term perspective as the technology and demand evolve as well.
• 15:42
  SPEAKER_00: So the valuations we have right today reflect high expectations.
• 15:46
  SPEAKER_00: And AI has captured investors' attention.
• 15:49
  SPEAKER_00: Valuations for many technology companies have risen steadily.
• 15:53
  SPEAKER_00: And as the chart that I'll show again on the blog and then ultimately YouTube, information technology sector valuations are 21.4 times and are high relative to their own history in the broader market.
• 16:05
  SPEAKER_00: And the same is true for such as sectors in the communications services, the consumer discretionary, which also contain large tech companies.
• 16:13
  SPEAKER_00: And at the same time, these valuations also reflect strong earnings growth as demand for AI certainly capabilities grow.
• 16:21
  SPEAKER_00: And that's why, again, investors are questioning if they keep on doing what they say they're doing, they'll be fine.
• 16:28
  SPEAKER_00: But what have you done for me lately?
• 16:30
  SPEAKER_00: And, you know, show me the money, as as Cuba Gooding said a while ago in a very funny movie.
• 16:36
  SPEAKER_00: So, you know, it's really important to remember that valuations are not a tool for predicting what markets will do tomorrow.
• 16:43
  SPEAKER_00: Instead, valuations can really help us decide the appropriate mix of assets in a portfolio, especially when aligning it to your financial goals.
• 16:50
  SPEAKER_00: So while AI trends provide potential opportunities for growth, many other sectors are attractively valued and have expected strong earnings growth as well.
• 16:59
  SPEAKER_00: So you want to be diversified.
• 17:01
  SPEAKER_00: We talk about diversification on this show all the time.
• 17:05
  SPEAKER_00: Overall, we are very interested in diversifying a portfolio because not necessarily everything goes up and not necessarily everything is risk or needs risk.
• 17:15
  SPEAKER_00: We always I always try to late relate it being an 80, 90s kid, having a waterbed.
• 17:20
  SPEAKER_00: People know what that was.
• 17:22
  SPEAKER_00: When you lay on one side of the waterbed, the other side goes up.
• 17:24
  SPEAKER_00: And ultimately you you want to have a flat waterbed with so everybody can get a good night's sleep.
• 17:29
  SPEAKER_00: And that's what you try to do when you subscribe to modern portfolio theory and diversify into different sectors, because not necessarily one or the other is going to go up or down.
• 17:40
  SPEAKER_00: Ultimately, you're going to get a nice return over history, historically speaking, and you're going to have one of the best asset classes or best performing asset portfolios in historical numbers.
• 17:53
  SPEAKER_00: So the key is to maintain a perspective and balancing the AI theme and other parts of the market to work towards your personal financial goals is really where you're ultimately going.
• 18:04
  SPEAKER_00: So the bottom line on all this is the trends driving AI go beyond few technology companies.
• 18:09
  SPEAKER_00: There are so many different places that you can invest in and different things that you can invest if you want to ride this trend and ride this wave.
• 18:19
  SPEAKER_00: We talk on this show all the time about riding the wave, finding the trend, investigating the trend, being on the wave.
• 18:25
  SPEAKER_00: Right now, it's uh it's pretty wavy because semiconductors have come back, many tech stocks have fallen, many software companies have come back from from into a dose of reality.
• 18:36
  SPEAKER_00: So this is when good investors, smart investors, sharpen their pencils and get to work, making their list and finding good companies that they want to be a part of and digging down into the details of an investment rather than just blindly investing in something that your neighbor is investing in or somebody told you to do your homework, you know.
• 18:56
  SPEAKER_00: And uh there's so many easier ways nowadays to do your homework.
• 19:00
  SPEAKER_00: Where before it used to take so much time, you can really do some really solid work using the computers and the technology and just what I talked about, even using AI.
• 19:09
  SPEAKER_00: So these themes, you know, they're driving markets.
• 19:12
  SPEAKER_00: And it's important to maintain this broader perspective and a longer-term time horizon with focus on long-term financial goals and then evaluating those goals.
• 19:22
  SPEAKER_00: You know, many people, you know, that might think that they need in their 70s or the 80s, might think they need a lot of this nest egg, either can spend it or they can invest it for the next generation.
• 19:33
  SPEAKER_00: And some might say that you don't necessarily need to be investing for yourself on a very conservative basis.
• 19:39
  SPEAKER_00: You can separate things out.
• 19:40
  SPEAKER_00: You can have your conservative portfolio, and then you can invest for others that you want to pass down by owning some of these different technology uh spaces.
• 19:49
  SPEAKER_00: So it's just that's always just an idea to think about because many of our clients are never going to spend the money that they that they have.
• 19:56
  SPEAKER_00: They're never gonna get spent through it.
• 19:58
  SPEAKER_00: And so it is a legacy play for sure.
• 20:01
  SPEAKER_00: You know, what are you investing in for your grandkids and for your kids uh and your great grandkids?
• 20:06
  SPEAKER_00: Those are things that are just really, really important and the question we always like to ask of all of our clients.
• 20:11
  SPEAKER_00: The show's Money Matters or Greg, I want to thank you for being with us today.
• 20:14
  SPEAKER_00: Greg Farrell, CEO and owner of FerroWealth, this wealth management firm here locally in Valpo.
• 20:18
  SPEAKER_00: And check us out.
• 20:19
  SPEAKER_00: We'd love to hear from you.
• 20:20
  SPEAKER_00: Check our website out, feralwealth.com, see us on socials.
• 20:23
  SPEAKER_00: You can find us anywhere we pod the show, the show Money Matters or Greg here today.
• 20:28
  SPEAKER_00: Uh, Apple, Spotify, YouTube, you name it.
• 20:30
  SPEAKER_00: And also here at WVLP103.1 FM.
• 20:34
  SPEAKER_00: I want to thank everybody today for joining us and really look forward to bringing many topics about your financial life to you as we move on past our 192nd episode and uh keep on rolling.
• 20:45
  SPEAKER_00: So thanks for being here today.
• 20:46
  SPEAKER_00: Hope everybody is safe and has a healthy and profitable week.
• 20:51
  SPEAKER_00: We'll see you.
• 20:54
  SPEAKER_01: Thanks for tuning into Money Matters with Greg.
• 20:56
  SPEAKER_01: We hope you gained some valuable insights today.
• 20:59
  SPEAKER_01: Remember, your financial journey is personal, but you don't have to go it alone.
• 21:04
  SPEAKER_01: If you enjoyed the show, be sure to subscribe and share.
• 21:07
  SPEAKER_01: Until next time, here's to making your money work for you.
• 21:10
  SPEAKER_01: Securities and investment advisory services offered through LPL Financial, a registered investment advisor, member FINRA SIPC.