00:00 Julie
Let’s bring in Matt Powers, Powers Advisory Group managing partner for this week’s FA Corner, brought to you by Capital Group. Matt, great to see you. So, um, how many calls are is your phone ringing off the hook from people who were spooked by the sell-off and wondering what they should do with their large cap tech holdings now?
00:21 Matt
Yeah, yeah, Julie, thanks for having me. Yeah, you know, I’m getting the question a lot. So, you know, I don’t think this is 2000 all over again, but I do think the biggest risk we have, you know, it’s it’s it’s it’s concentration. It’s not volatility. It we’re seeing a normal rotation. It’s just a normal healthy overdue rotation in the market. And, you know, after two years of extremely concentrated leadership. So, you know, the last couple of years, the story’s been the same. The top 10 stocks in the S&P 500, I mean, almost all mega cap AI names that made up around 40% of the index.
00:59 Matt
And, you know, driven the majority of the return. So when one of those names wobbles, it’s like the entire market does and Nvidia is the best example of that right now. We just saw that yesterday.
01:07 Julie
So is your message to clients then maybe don’t have so much concentration in those stocks?
01:14 Matt
Yeah, you know, and let’s you can almost bring that right back to Nvidia because that’s that’s kind of the poster child of this right now. We all know that. and you know, just yesterday, huge revenue or Wednesday huge revenue growth, guidance raised, Jensen basically came out and said there’s not an AI bubble, they see something totally different. but you could almost feel the relief there.
01:43 Matt
And, you know, AI stock they bounced at first and everyone’s thinking, okay, crisis averted, but we saw how quickly that turned. But here’s what worries me, you know, on the flip side, if that report had gone the other way, you know, if guidance had been soft, if CAPEX commentary cooled off, you’d be talking about a totally different tone into year end. And you know, I’ve been doing this over 20 years and I honestly can’t remember another time where one company’s earnings call had this much power over
02:14 Matt
you know, how investors feel over the entire market. you know, that kind of reliance on a single stock, I think is just it’s just dangerous and, you know, it’s fine when it’s working, uh not great as a risk setup. So what we and what we saw yesterday, I I really think it’s just the market, you know, with Nvidia turning midway through the day was really just a classic sign of investors move away from those high valuation names and pulling some risk off the table. And, you know, in other words, they just
02:39 Matt
I don’t think investors are abandoning tech right now. They just stopped chasing it and maybe decided to uh to dial back the risk.
02:44 Julie
And and you’re you see what’s happening right now as a rotation, not sort of a collapse in AI. So what what what are you seeing that indicates that to you?
02:55 Matt
Yeah, call it a rotation. It’s parts of the market that were completely ignored are finally starting to wake up a little bit and to me that just signals some normalization. It’s it’s not a a bubble popping because, you know, I think if this were a bubble bursting, you’d see a correlation spike. You’d you’d see everything selling off together. But what we’re actually seeing here, I think is some broadening and in this past week, tech in the Nasdaq, we know pulled back, but under the surface there, you saw staples and healthcare have started to outperform and and they’ve been lagging for a long time.
03:26 Matt
Um exactly what you should see after a couple of years like we’ve had. Uh you know, so no, I don’t think the AI story is dead like I’d said before, but I also don’t think you want a portfolio that that lives or dies on on basically seven names or one name for that matter.
03:42 Julie
I mean it’s interesting because you you do have a pick that um that you mentioned to us that’s still a tech name, but sort of a different kind of tech name and that’s Palo Alto Networks. How do you how do you think about that in terms of how it’s situated in a portfolio?
04:03 Matt
Yeah, you know, we kind of say we’re playing defense within equity. so it’s not like we’re shifting to cash with clients. But, you know, we still like tech. It’s just when you uh you know, it’s a way to stay with Palo Alto, it’s a way to stay in tech, but in a much more defensive lane and and they took a little bit of a of a dip in price, so it makes a buying opportunity for them. but
04:26 Matt
cyber security, it’s one of the last IT lines that anybody’s going to will cut and, you know, we’re in this world with more cyber attacks, there’s more ransomware, more more cloud and hybrid work and, you know, security’s gone from one of those things that’s just kind of nice to have to, it’s necessary at this point. and they’re the leader. and, you know, they’ve been growing nicely. revenue was was up mid teens year over year and and their next gen security business, which is, you know, cloud security and some of their AI enhanced tools which they’re leaning into is growing even faster.
04:55 Matt
So not a cheap stock, it doesn’t hit that valuation thing that I’m talking about, but in our view, it’s just a good core long-term holding and, you know, if you want tech exposure without betting the the farm on on AI CapEx staying where it’s at, I you know, Palo Alto is a good way to do that.
05:22 Julie
And and Matt, just quickly, how many of your clients have crypto in their portfolios and are you recommending they make any changes given what’s been going on there?
05:30 Matt
I mean, little to none as far as clients that that own them. Personally, yes, I do. Uh you know, we know that it trades like high beta tech and you know, investors pile into to growth and AI stocks, Bitcoin usually rides alongside and, you know, and and the exact opposite. But, you know, we just saw this yesterday, not to go into to depths on it, but it’s the it was the leverage yesterday, there’s heavy leverage, you know, it’s, you know, trades 10 20 times uh even more and so when the the the price breaks some of these key levels, those leverage long positions get automatically liquidated
06:14 Matt
and, you know, so yesterday was exactly that. Bitcoin slipped, leverage unwound, you know, liquidation snowballed um that move. So I don’t think necessarily we’re just seeing uh crypto being sold. I think uh or Bitcoin being sold. I I I think yesterday was the leverage machine was just kind of kicking in there.
06:30 Julie
Right. Matt, good to see you. Thanks a lot. That was thanks. That was FA Corner brought to you by Capital Group.