00:00 Speaker A
And Ines, I want to start with you here on this view that the AI bubble is here, it’s now, it’s going to explode. Has it already exploded if you’re just looking through the prism of software stocks?
00:15 Speaker B
I mean, uh it’s certainly, um, it has impacted, uh, the software stocks and there is concern that you are seeing disruption in the software space because of AI. and that’s also because and that also bleeds into other areas of the market as well, other areas of talk of tech. We’ve seen it with uh transportation, uh and logistics stocks as well. So, um, yes, this the market is concerned that you may be seeing a bit of a pop with the AI bubble, but you also have to look at the productivity side of it and what this will do for businesses, of productivity wise and businesses that are using AI. And this is expected to help their bottom line. I mean, you had Fundstrat that’s come out to say it’s basically a lower input cost for these companies, which equals more profits for them as well.
01:21 Speaker A
Noelle, what I find so interesting, it’s good to see you again, uh, by the way. It’s just the correlation between crypto and these software stocks.
01:32 Speaker C
Huge correlation, Ryan. And the fund managers survey, I mean, I haven’t actually seen the full report for some reason, I am not on the Bank of America mailing list. But I have been parsing the media report I have been parsing the media reports and what I always look for is signs of sentiment. And there’s some heavy contradictions in here. We’ve got everyone seems to think we’re in the AI bubble as you rightly pointed out. Yet at the same time, everyone’s very bullish. And what they seem to be forgetting is that it’s the AI sentiment that has driven the index up over the past year. And as we turn into some more conservative names, that generally does not bode well for what’s ahead for the stock market. And this is one of the reasons, as you pointed out, keeping crypto prices low. risk off sentiment is not good for short-term crypto performance.
02:30 Speaker A
Noelle, what um let’s just stay on that half a second because I want to get into crypto with you, of course. But I just posted a story on Yahoo Finance just hit like five minutes ago. Looking at on the one hand, we’ve seen this major sell off in software stocks, but you look at Wall Street profit estimates for software companies, they’ve actually risen, uh, which is, I don’t understand. I mean, at some point, Wall Street has to get it and they don’t seem to get it yet.
02:59 Speaker C
Well, but the old as, as you know, the old adage is, it’s not what you buy, it’s what you pay and there is an argument to be made for anything to do with tech having run up, pushing up valuations. Again, there are arguments that valuations are normal given the explosive growth expectations. If you if you start to doubt those expectations, then obviously, your expected price has to come down. But growth in earnings is rear view mirror. what prices what the market is looking for now is signs that the CAPEX is going to produce some fruit and that the disruption to companies, especially the software names, the disruption is not going to cause any hiccups in the bottom line.
03:51 Speaker A
And as I I’m really of the view that in order for software stocks to bottom, earnings estimates have to bottom and that has not happened yet.
04:04 Speaker C
No, they haven’t learned that the word is estimates. Sorry, I thought you were talking to me. Go ahead, my apologies.
04:08 Speaker A
Go ahead, go ahead.
04:10 Speaker B
Yeah, yeah. um I mean you’re right. Look, there’s a type of rerating of what we’re seeing and um expectations have to come down because there is disruption that is going to happen. It doesn’t mean necessarily that the whole software sector is going away, but we are seeing also, you know, investors, the market that is also has has been expanding into other areas of the industry because it is seeing the sort of that, okay, maybe perhaps tech software within the tech space. This is a place right now that the market is ignoring. I mean, because you’ve seen that rotation going into other sectors like energy, like materials, like consumer staples, and the market is sort of hiding out in these other sectors for the time being.
05:14 Speaker A
Let’s bring in uh Brent Schutte. He’s over at Northwestern Mutual uh Wealth Management. Uh Brent, good to see you as always, my man. We’re having this debate on software stocks, whether to get in there and buy, what’s going on with them. We’re about seven days out from earnings out of Nvia. If this report is good, doesn’t it justify everything we have seen in terms of a sell off in these in these software stocks?
05:41 Speaker D
I mean, I think the big thing that’s occurring was where you opened with an economic broadening and that’s where I think the market is starting to broaden out of those AI names that have previously been the the only areas in town that actually had earnings growth. You’re seeing earnings growth across a broader swath of the economy and a broader swath of the market, which is attracting investors to this rotation theme, which we think continues. And that’s where I just think you’re seeing that rotation occur, which can be messy. Um from the standpoint of of the software companies and earnings and whatever else there may be. This is where investors have been paying a premium multiple for those. They’re crowded trades that people have been uh moved into for over the past few years as the rest of the economy and the rest of the market kind of languished. uh and now that they’re contemplating, um what happens going forward, I think investors are thinking about the multiples they’re paying for those. and that’s where you’re seeing multiple compression which is pulling those stocks down quite a bit.