Positioning for Big Tech's next move

[00:00:00] Speaker 1: Green across the board today, so a little bit of relief, obviously, after the CPI print. Certainly the AI bulls getting a nice lift from Supermicro and CoreWeave, the beats, the raises, etc. And Ed Yardini goes to $8,400 now on the S&P. $8,250 was the prior target, which at the time, he said, could be a little conservative. All right, so the words, then the action. So he raises it. Says, quote, we've never seen consensus earnings expectations rise so quickly for the current and coming years as they have since mid-2025. The result has been an earnings-led melt-up in the stock market to record highs. That's where we find ourselves. There's no reason to think that that's going to change as long as the earnings picture remains what it is. [00:00:45] Speaker 2: No, and congratulations to Ed on calling the 20s for exactly what it is. It is the roaring 20s specifically attributable to the earnings growth. Now, Ed is the highest on the street. If you look at the S&P targets, the actual consensus price is $78.45. But we're looking now at taking profit margins towards 17%, which is absolutely staggering. If you think about where they were just five, six years ago, kind of wallowing around 10%. The earnings growth is the driving force for sure. Ed right now is the highest on the street. And I think what we will benefit from is continued participation as we move higher from the systematic funds. We're kind of sitting in place right now off of this 3% gain that we've had in the month of August. Really strong out of the gates. But I'll tell you what. We break out above that August 5th, 77, 93 high. I expect systematic to engage further and move the market towards $8,000. [00:01:42] Speaker 1: Okay, so I mentioned, you know, obviously you get the news that you really needed, Bryn, today. Does the Yardeni target sound reasonable now to you? Because I said yesterday, I think $8,000 is the floor. It feels like it from the street, at least. Everybody's gotten now to at least $8,000, or certainly most people are getting there. And now he ups the ante at $8,400 because of this FEMO, right? Not FOMO, FEMO. It's the earnings-led momentum. [00:02:10] Speaker 3: So I typically, you know, ignore year-end price targets. That being said, Ed's been doing this for decades. He has a very good track record. And so I think directionally what he's saying makes so much sense because you also have to think about how the construct of the S&P and the Nasdaq or the S&P for earnings has changed so much. So yes, NVIDIA is still the number one holding in the S&P, but now Broadcom and Micron are also in the top 10. Obviously, Broadcom's been there for a minute, but Micron's now broken to, I think it's like number seven or eight position. And those earnings from those three companies are going to continue just to be monster. And so I think if you are looking at earnings from these specific companies, especially the Micron and NVIDIA, you can math out very easily why his number at 8400, like, sounds plausible. And so I do think investors do need to understand that huge shift of the constitution of the S&P and the Nasdaq has changed, which is going to continue to push those earnings growth numbers higher. [00:03:14] Speaker 1: Shan, what do we think about this market? [00:03:16] Speaker 4: Well, I mean, the crazy thing, right, is that the S&P 500 is actually underperforming other global equity markets. And so I think if you look at the tech PE ratio, we've seen that compressed pretty markedly. We're seeing the opportunity for this pivot, if you will, in terms of the next phase of AI. But I think it's most important to kind of counter some of the enthusiasm with the fact that many are still concerned about, like, the recent unwinded memory, was that fundamental, feels more technical to us, certainly the degrossing. The reality is, too, you also have the news from NVIDIA about these memoranda of understanding that clearly is indicating that there is going to be a wider participation. We've seen it in the credit markets already, in terms of funding, investment, this issuance, increase in investment grade issuance. You're seeing it now, utilizing the alternative private equity managers, private credit managers to also fund this growth. The bottom line is that all of this is underlying the economic momentum that we have globally. We're no longer, especially here in the U.S., Scott, our economy is not based on what's happening with the consumer. And so all of these concerns about the labor market and inflation and the economy, the Fed, the reality is, is that the tenor of economic growth has changed in the United States, and the companies that are performing well from an earnings perspective are benefiting from that and are likely to continue to benefit from that, even if there are pockets of weakness in parts of the consumer market, for instance. [00:04:45] Speaker 1: Big week for the AI bulls, undoubtedly, right? The NVIDIA financing news, no money to be seen yet, obviously, but the announcement enough speaks to the environment and the expected demand that's going to be there. CoreWeave blows it out, stocks ripping. Super Micro gives a good guide, stocks higher. So this has been a week of AI trade validation, in many respects. [00:05:10] Speaker 5: It's been about validation, it's been about the messaging and how they're doing it. Remember, people were worried about how and why companies like Oracle and Microsoft going out into the private sector and gaining debt. This consortium, even though it's still not completely tied together, this consortium, in terms of how NVIDIA put this together, number one. And number two, how they communicated, Scott. They need information to the market. And they did a great job talking about how that's, that's number one. Number two, in terms of the tech trade, we've said for 10 years that tech is becoming the consumer staples of the U.S., period. And so earnings have become excessively stable, but Ed nailed it, and we talked about this on the show yesterday. In the second quarter, we've never seen in the history of watching earnings revisions for well over 30 years. We've never seen a revision of earnings like that, and when you see that, that is real. That is real. And so what's going to end up happening is you're going to continue to see these types of revisions over the next four to six quarters, and 8400 is clearly in the way. [00:06:11] Speaker 1: Mead Bespoke today talks about the beat rate for tech, the highest, 85.1%. One of every 100 tech stocks that have reported, 85 of them have beaten expectations. You have had, according to Bank of America, who watches the flows of what their institutional clients are doing, tech's second biggest inflow ever. So driven by hedge fund clients. Remember, we've been talking a lot about the degrossing from hedge funds. There's been a lot of deleveraging. The positioning environment, the field, if you will, is cleaner now. Tech saw the second biggest inflow week of all time. Money's going where they think they can get a nice reward. There's no doubt about that. This trade seems to be back in a big way. If it wasn't gone, it was parts of it, at least, were just taking a rest. Now, the chips in the momentum trade, they were taking more than a rest. They had to puke up a little bit before they felt good enough to get back in the party. [00:07:09] Speaker 2: So we had this 19% move from the end of March through June 2nd that took you up to 76.20, an all-time high. And the market, to your point, Scott, it kind of had this consolidation to the lower trade as you move through the month of June. We're now rebuilding positioning once again. The catalyst is clearly earnings. And I think, Scott, we're getting in front of NVIDIA earnings. Exactly two weeks from today. Exactly two weeks from today. So if I can, let me just walk you through why I think we're getting in front of it. First of all, analyst community, 96% buy rating, 303 price target. Here's what happens with the revenue growth. The revenue growth re-accelerates. Remember when we were hearing about revenue growth moderating? You're coming in, the consensus number is 96%. That's the best figure in nearly 12 months for NVIDIA. Now you're going to see earnings growth, 114%. You're talking about free cash flow generation that's going to come in at $47 billion. Next quarter, they're going to guide to $100 billion in revenue. Think about how staggering that ultimately is. I think the market is getting in front of what I think universally people believe is going to be a really good quarter. Be a little bit careful with that on the other side of earnings. I was exactly thinking that. Be a little careful with that on the other side of earnings. But I think we are working ourselves up towards that previous high at 236 for sure that we had in May. [00:08:35] Speaker 1: Well, Brent, Goldman says it's going to 285. They reiterate their NVIDIA buy. Yeah, but Joe makes, I think, a really great point that we just came off one of the best weeks that this stock has had in an awfully long time. It's been on a nice run here, OK? You can look at it over that month to date. Thank you, guys. That's a good chart that shows exactly what I'm talking about. Therein lies one of the problems, OK? So expectations are elevated, too. Watch out on the other side of earnings in a couple of weeks. [00:09:07] Speaker 3: I mean, the growth of this company, though, is ginormous. I think it's been a huge laggard with the growth, which tells you it's like people just still don't believe this growth is going to continue. But to Joe, walking through those revenue and earnings numbers, they are. And to do $100 billion next year is amazing. And so the stock continues to get cheaper. I think it's just been consolidating, right? What do we have, a $5 trillion market cap? This stock is cheap. It should be at $2.80. $2.20 is, $2.23 is inexpensive. So we'll see if it can break through that technical ceiling around $2.30s. When it does, I do think it will. I think it's off to the races. But that $2.30 definitely is a ceiling that it needs to pierce through. But it's been an underperformer relative to the Microns, a bunch of different stocks year to date. And so I do think there is an opportunity for catch up, especially with Elon saying with SpaceX that they are pushing all of their chips in with NVIDIA. That's a huge, huge new customer that was not underwritten a month ago.