---
title: 'Forget the Mag 7. Here''s where smart money is going'
source: 'https://youtube.com/watch?v=PVnxCt8LoI4'
video_id: 'PVnxCt8LoI4'
date: 2026-08-01
duration_sec: 1646
---

# Forget the Mag 7. Here's where smart money is going

> Source: [Forget the Mag 7. Here's where smart money is going](https://youtube.com/watch?v=PVnxCt8LoI4)

## Summary

In this Yahoo Finance panel, Kenny Polcari, Seema Mody, and Ryan Payne discuss the ongoing rotation away from the Magnificent Seven tech stocks, AI-driven capital expenditure concerns, and where 'smart money' is heading. They preview big tech earnings, debate free cash flow, and share oil and S&P 500 outlooks.

### Key Points

- **Earnings expectations jump 50%** [00:45] — S&P 500 earnings growth expectations increased by 50% over the last quarter, raising concerns that expectations may be too high.
- **Market rotation is healthy** [01:26] — Money is rotating from high-growth tech into energy, financials, healthcare, industrials, and materials — a healthy shift, not a liquidation.
- **AI needs physical inputs** [02:45] — You can't grow AI without more power and more materials; the market sometimes forgets this and rotates back to industrial beneficiaries.
- **Capex misallocation concerns** [04:05] — Disproportionate capital is flowing into AI data centers while the U.S. faces a shortage of 2–3 million housing units, suggesting mis-appropriation of resources.
- **Big Tech earnings week** [06:37] — Meta, Apple, Amazon, and Microsoft report this week. Microsoft is first and expected to not disappoint, with cloud and Azure as key topics.
- **Microsoft a buying opportunity** [07:42] — Microsoft traded down to 350, now above 400; the firm owns it and sees a huge buying opportunity on dips.
- **Hedge funds bailing on tech** [09:27] — Goldman Sachs and UBS prime brokerage data show hedge funds selling large tech, while long-term investors like Wellington and Capital Research are not.
- **Free cash flow matters** [10:07] — Some Mag 7 names haven't been free cash flow positive after spending; higher interest rates lower the present value of future cash flows, making this critical.
- **Apple is best Mag 7 stock** [13:54] — Apple is up over 20% this year, trading at all-time highs and at ~40 times earnings; it's a value stock with a growth-stock valuation, but the firm would buy more on a pullback.
- **Amazon's complexity** [15:03] — Amazon is hard to classify with multiple businesses; free cash flow is negative when excluding stock-based compensation, and AWS growth is uncertain.
- **Equal-weighted S&P outperforms** [17:02] — The equal-weighted S&P 500 is up 11.5%, outperforming the market-weighted index, supporting the rotation theme.
- **Move from semis to AI beneficiaries** [20:21] — Since June, the panel started buying Shopify, Visa, and stablecoin infrastructure, moving away from semiconductors to names benefiting from AI adoption.
- **Caterpillar surging 80%** [20:33] — Caterpillar is up ~80% because its turbines are used in AI data centers, and reshoring adds another tailwind.
- **September is historically worst month** [22:27] — September tends to be the worst month of the year for stocks, though not always, so volatility is likely in the fall.
- **Oil prices likely to fall to 70s** [25:49] — Even if the Middle East conflict continues, oil could land in the $70s, the historical 20-year average, due to ample supply and alternative export routes.

### Conclusion

The panel sees a healthy rotation into energy, financials, and AI-adjacent infrastructure names, while cautioning that AI capex sustainability and high expectations remain risks. Despite near-term volatility, they remain constructive on markets, with some expecting the S&P 500 to melt up further.

## Transcript

am Kenny Polcari and this is Trade the Talk at Yahoo Finance. Today, I'm joined by Seema Mody who's the CIO at Robinhood and many of you know Ryan Payne who is the president of Payne Capital Management and also the host of the
>> It just rolls off the tongue, Kenny. >> Yeah, right right off the tongue. me today. I really appreciate it. There is a lot going on, right? We're in the middle of this earning season. This is a big week for not only earnings but for
because we're going to get hit, you know, broadsided by a bunch of different things. So, let's talk first about kind of where you think we're at and then where you think we're at. Great. >> I think we're in a time period where
expectations have caught up to some of the numbers. Like if you look at the over the last quarter, earnings growth expectations increased by 50%, you know, across the board for the S&P 500. When estimates grow by that fast in a quarter
know, conflict that was seemingly over but now seems to be coming back and >> Um that we're, you know, there I think that's where you kind of get some like concerns. Like are are expectations too high? And I think that's what you're
market. >> Well, and I think we've seen that over the last couple of the last couple of weeks. Certainly expectations in the growth in the tech sector were obviously or clearly too high or at least that's
market action. >> You know, I think what you're seeing is the market. It's just rotating, right? And that's what's interesting cuz yeah, I run pretty broadly diversified portfolios. And I mean if you look at
energy stocks are crushing it. >> Um except for today. >> Or this week. >> This week, right? You pick the day, in oil. Um you know, financials obviously have
it out the beginning of earning season. Healthcare stocks, industrial stocks, >> materials material stocks, there you go. >> So, it's really been a great rotation it's healthy to see that you're seeing money flow to other parts of the market.
right? Because when I talk to clients, people start to get nervous, you know, they're nervous about market reaction, they see tech under pressure. I go, "Listen, this is not liquidation. Liquidation would be if you saw them
kitchen sink out the window. That would be liquidation. That's not what's point, we're seeing this we're seeing money move from these kind of high-growth sexy names that were probably stretched
overvalued into more conservative kind of long-term might be boring consumer consumer staples. Yet, it's a place where where investors want >> But, I think we're also so we also manage diversified portfolios, single
names, Robinhood strategies. And that we we kind of underlying foundation is that there's a there's a physical nature to what has been growing and that
like you you can't grow AI without more power, you can't grow AI without more materials. And so, I think like sometimes the market forgets that and and comes back to it. >> Well, I think there's a you know, it's
funny when you talk about the AI and the data centers and all the kind of the angst that builds up around data centers, right? About what they're doing the climate, what they're doing to towns. And I think it's very interesting
cuz I'm not sure that I would be on the side that if a data area of town that, you know, like out in disturbing anything, you're not taking farmland away, you're not chopping down
trees, just kind of the land, right? I don't see what the big deal is because is contained that keeps them cool and all that stuff. That's not drawing on on on those resources. And somehow they can manage the
>> Uh, I think they'd be a benefit to communities cuz it'd bring revenues in. >> Yeah, 100%. >> Yeah, well, I think also, right, it is more politicized practical that what
>> Right. >> Um, and I know the argument of like, cuz you got to build these things and then where those jobs go later. But also this disproportionate capital being spent on AI data centers. And last time
inefficiencies in the economy like we need more housing. construction, uh, you know, employment should be going like what is it, like two, three million houses short, you can correct me if I'm
So, I just feel like there is a little bit of a mis-appropriation of capital. seems a little bit like too much capital maybe flowing the same place. >> Well, maybe, but AI it is the theme, right? We're in the the middle of this
happening. And so, I think, like everything, it gets caught up. could end up seeing that there ends up being like housing growth and stuff like creates employment and then you have like cuz I think there's people living,
but living in like trailers and stuff like that nearby the data centers to >> communities >> communities built around them, but I >> think like the environmental thing is something we
>> The demand for power is our our grid is very old. like, there's our infrastructure is old. >> Well, and that but that's true, right? why it's interesting because, you know, Elon Musk, if he has his way, he's going
this then this whole conversation goes away, right, if that happens. >> Yeah, and I I was I don't remember who I was talking to recently, so this may not already have some stuff in space that is like Actually, I was talking to a
>> Data center stuff? >> Yes, there are still there are already And I and but I of course then I start thinking like who's going up there to fix it? >> But it feels like the long long game at
>> But I feel like, you know, data centers in space are probably a little bit >> I think that's one of the things about this market right now is that like the the hope and the kind of coolness of what could be in the future is still
quite long duration. And then when you come into an environment where oil prices are higher, inflation is definitely a risk. You're seeing it not just in oil prices. Like then you start to realize the impact of long duration
interest rates. And I think that some of that is coming through now. a big tech week, right? We're going to get four of the biggies, Meta, Apple, Amazon, and Microsoft. Um and the first one out of the gate I I believe is
Microsoft. So, they're going to be the first one to react to kind of what we've heard from Apple last week, the you know, the the the ramp up in CapEx Microsoft is going to is going to come out and they're going to have to talk
about their cloud and Azure and all that stuff. I I don't think they're going to disappoint at all. In fact, I think Microsoft I think Microsoft is one of window like baby with the bathwater. It was down 30 some odd percent.
>> And I don't like I think it's a huge buying opportunity. rotation into the Magnificent Seven in general. don't think Google actually disappointed. I mean, the the revenue
>> Right. >> So, it's just like when is Wall Street expenditure is just going to continue to go higher. that's maybe a short-term issue cuz it's
think it's coming to roost this summer, but at some point they might be like, "Hey, I'm happy with this continued revenue growth that you're seeing." And of the Mag Seven or the hyperscalers or hyperspenders, or you want to call them,
>> Well, so I guess we're going to find out on Wednesday, right? Now, look, it traded all the way down at 350. I think now it's trading above 400 again. So, it has rallied some back and I actually, you know, listen, to be fair, I own
Microsoft, the firm owns Microsoft, and you know, I would I would be buying it on the dip. Like I said, I thought it was a huge buying opportunity, but we'll the next three or four days are going to be very key to where this market goes.
>> Yeah, I mean, obviously Microsoft got caught up in the whole software, you know, issue. And also their their own models, like that. You know, their LLMs. So, you know,
there hasn't been this huge like explosive take-up of Copilot or >> models to the record. >> Okay. But I I I don't use Copilot. >> I like it is sufficient for what I do. I don't think I need to like
Claude or GPT? >> I use Gemini because it's free as part know if it's better, but I think it's sufficient enough for, you know, a financial guy like me. I don't think I need the most sophisticated models, but
>> I Well, so we Yeah, I don't know. I This is maybe where I >> No, I think I mean I truthfully, like I I do see a
>> want to talk to data with Claude versus like using another LLM for now. >> I'm just a simpler man. I like simpler data. I think that that could explain >> But I think there's I do think Microsoft, like the expectations have
been low, so they could easily, you know, beat this time around and and kind starting to see more software companies do better in the last like couple of weeks on and off, more so than the SAS apocalypse time. Um, but I I also wonder
>> Well, right. But I But you see, that's true because coming into this earnings season, I think the bar was set high. A lot of us talked about that. Stocks were priced to perfection. and so, you know, you Goldman Sachs and UBS came out last
their prime brokerage business, they can kind of see where the flows are going and how all these hedge funds were bailing on large tech. It wasn't the big Wellington or Capital Research that were bailing. It was the hedge funds that
makes sense because they're more short-term oriented than a long-term >> But I think for I mean, I do think free cash Like I don't think it's a bad thing >> No, no, I don't think so. Yeah. >> think we should be like, oh, that's like
>> [laughter] >> But I I actually think it's like a good not forget about that because the bet is that longer term they will be positive free cash flow. And if that feels further in the future
or interest rates are higher and thus like it costs more, you know, that that the current value of that is lower, then that's when it starts to matter. And I I did a whole deep dive on this, um, actually looking at owners' free cash
compensation, and it shows you that some of these Mac 7 haven't been positive ex spending. >> And then you want to add on there like Because like I think this happened with Google like yeah, I own some space X, so
that actually was part of my profit uh, this past quarter. So, yeah, there is a with that, but Google's the one who just announced that they had negative free cash flow this quarter, right? Because of their huge AI
>> Well, but Tesla's had it, right? >> it. That's true. >> Amazon has never had it. Amazon has never had it either, so. >> Um, but I think that Although Google on the top line, they crushed it, but then
they realized, okay, now they're getting negative free, which I think was part of the reason I they hit the sell button. But, uh, we've seen that sell-the-news really since earning season has started. Not even just in tech in kind of a lot
>> of that too is this whole rebalance trade is what they're talking about. So, if you're a hedge fund, you were playing the game of, "Okay, we're putting SpaceX have to sell some of the Magnificent Seven cuz they're just
>> So, they lost their capital weight. In fact, I think Millennium bet to make like $4 billion on that trade. So, of course the institutions made money, retail investors didn't. Story of Wall Street. Um so, yeah, I think that's also
fact that you've had this big rebalancing where a lot of money had to names. >> Well, so let's just talk about that for a minute because SpaceX is trading where? At 110? I think it was trading It
trading I think on Friday it closed around 110. and a quarter, I think, right afterwards. And you know, come August earnings and August 6th, then there's going to be up to 900 million shares
that are going to be eligible to come to the market. Maybe they don't all don't. Um which I think is also been putting pressure on SpaceX. I wouldn't be 80s before it bottoms out.
anywhere below 100, I don't own it yet. I want to own it, but below 100 is when >> I wouldn't touch that that stock with a 10-foot pole, Kenny. I mean like you can probably say this more correctly than me. It's like 80 times
>> Okay, the S&P is at three times sales, and that's historically high. Uh I mean, this company is a mature company. It's been around since 2002. imagine that this company's going to have in the next couple years already
priced into the stock. >> I mean, there is a lot of good news priced into the stock. I I I sort of see like I I think of SpaceX in the same way >> Yeah. >> And obviously SpaceX has some good like
their their satellite stuff is very, you know, cash flow rich, but companies has always been a lifestyle decision more than an investment
>> never bought Tesla. I don't own a Tesla. I never bought Tesla. I I had that same But I think SpaceX is a little bit different, which is why at some point It's not going to It's not going to consume the portfolio by any stretch,
exposed, I think. >> I mean, I believe in the space theme. >> You know, for the long Like I believe in it for the long term. I I But I I wouldn't put all of my space theme money into
Amazon. What's cuz those come out on Thursday? So, talk about concerns and/or >> Well, I think with Apple, what's surprising is it's the best Magnificent Seven stock this year. It's up over 20%. >> highs, isn't it?
>> Yeah, I think it is I think it's a value stock And I think it's trading like a growth stock. It trades at like 40 times pushing the stock, but this is another stock where I'm kind of like, why would
like 15 times forward earnings. Where there's not that much innovation. The today than it did a lot last couple years. We know China has some great phones we'll never see, which have caught up with the technology. So,
memory and how that's impacted them. And I know they're raising prices to cover that, but what Like they're also trying to get the government to allow them to >> Right. The stock market doesn't care. It just keeps going higher. Right. Which is
>> [laughter] >> Right. It just doesn't >> But I and I agree. I I own Apple. The firm owns Apple, but but I'm not going all-time highs. On a pullback, I'd buy more. But I'm not I'm certainly not
>> What about Amazon? What do you think about Amazon? because they're it's hard to say like, what is Amazon? They do a lot of different things, right? Like they have a consumer retail business. Now they're
going to have their own shipping business. Now they they sell like the different things and I'm like as soon as I say like oh, I don't I don't want to invest in this company. Someone can give you me an argument about something like
boxes do you get a day from Amazon? >> Right. There you go. >> You know, and I'm like yeah, okay. But I just But I think like personally, I've really struggled with wanting to to wanting to
to invest in this company because one like their their free cash flow has been pretty negative. Especially when you take stock-based compensation out of it. some of the private companies that have lifted their um you know, lifted them.
But and then also like just when you Amazon Web Services, like is that going to grow or not going to grow? And I don't I it's just hard for me to it's like a million things. >> a million things.
>> It's hard to measure it for me. >> I I know, but I I don't know. I I think holding for a lot of people. >> Oh, and it's I mean it's huge in the S&P. So of course like even if you own a little bit of it, you're under weight.
>> I I I agree with you because I think the the other components that is because it's such a big part of the S&P 500 and I think there is still a lot of retail trillion. Invariably, if that money comes in the
market, a lot's going to go into the S&P 500, which is going to be a bit under all these Magnificent Seven stocks. So you can almost be like you don't almost because of that capitalization weighted you know, the way that with the S&P is
there anyway. So I think when you get a re-rotation of these stocks, you know, Alphabet's going to benefit. Meta's going to bene- Microsoft's Microsoft's benefit. It's just going to be a natural, you know, cuz retail money's
And I I I think what you know, you you said this and made me think about it. said this and made me think about it. The S&P is up was up >> The equal weighted S&P is up 11 and 1/2%. It's really outperforming the the
market weighted S&P, which I think speaks to your whole rotation idea that leaving the tech high-growth tech names cuz that's what that's what's really driving the market weighted S&P, right? But it's
clearly moving into other sectors, which I use as a as an argument know, what that are getting nervous. I go go okay, take a look at what's >> I think that around February of last year I I said
there's more to life than the Magnificent and I I have I have really like I had this theme also of investing in spenders of the CapEx, which is essentially saying the same thing in a
lot of ways and I think I have this kind of like overarching view that like not trying to be political, but companies themselves have probably not paid enough in tax their fair share of taxes, right? Like and obviously that's
been to make us more globally competitive and this is almost the way of like the largest companies like paying their taxes, but they're doing it in building out infrastructure and building out like building out like the
future for us. I I think Right, but that's why I'm like that's the money is going and not where it's And that's one of the reasons why but of that. >> Well, they're not the hyper spenders or
don't go bankrupt doing it, right? That's the thing we really hope. But No, but I also think it's kind of like we don't really know when the spending's if Yeah. >> Every quarter I get nervous about them
quarter." >> Yeah, okay, so that's the question. Is the AI trade dead in your mind? Certainly not for me it isn't. >> Not at all. I don't think it's dead, but I think there's a lot of risk there
the banks here which trade for like a 40% discount to the S&P. We know the economy is starting to pick up, loan growth is going up, capital markets are opening up. I'm getting like a 2 3% dividend. So, I think there's a lot of
market that aren't predicated on AI. And I think it's important because if I look at most portfolios, they're so dependent on that AI trade. spenders directly, you own semiconductor stocks, you own, you know, some of the
to, you know, they're going to basically electrify these um AI data centers. And I think having positions in your portfolio that if the AI trade does not and if all the spending doesn't come to fruition,
>> Starting in June, we started doing that in our portfolios. We started doing like >> No, no, I was going to say somebody [laughter] was on somebody was on TV this morning. I don't know if it was on Maria or on Varney saying that
you can't really get away from AI because every industry is now impacted by AI, right? So, when you think you're not getting involved in AI, in fact, when you buy JP Morgan, you're buying their exposure to AI.
>> Right. When you buy the banks, when you buy the industrials, when you buy, >> And that's why I'm starting saying like I'm we started moving away from the semis in June and and to other things that we think will benefit from AI. And
that's why we started buying like a Shopify, a Visa. I actually think like this whole kind of like infra- financial infrastructure with stablecoin is an >> growth of AI. >> Well, look what's happened to
Caterpillar this year. Caterpillar it's a great company. >> There was nothing really sexy about it. It was up 80% or something because it >> Yeah. >> ecosystem, right? The turbines. Not only
now the turbines that they that they manufacture that are used in the AI trade. And they Caterpillar's been massively outperforming. other stories there, right? You have We
doing all this reshoring. >> I was like with Cleveland-Cliffs finally like in September of last year. >> That's an old name. >> That's an old name.
>> Yeah. >> Well, there's no it's a great a great up around the world as well. So, when I think about like mining stocks, you markets, all these places are commodity based. So, I think I don't think all
on just AI. And I like this piece like JNJ's up like 50% plus or less 12 artificial intelligence. >> No, that's not. No, you're right. think there's a lot of names you can put your money to that's not predicated on
pretty soon, but I want to get your kind of view on going into August, which tends to be kind of the doldrums of the summer. A lot of people are off. Europe is on vacation, right? So, things quiet down. There's no Fed meeting in We
but I'm assuming you think there's no rate hike on Wednesday. >> But, right. Okay, there's certainly nothing in August because there's no there's a reason to, but typically there won't be anything in August. So, what
should investors be thinking about as we move into August and then into the fall, which tends to be sometimes a volatile >> September tends to be the worst month of >> It's good to know. I'm writing that down.
>> Not not always, obviously. If you go back over the last, like, you >> That's right. >> Um because people ignore what happens and they're like they make the changes they need to make. Um I think you do
need to watch inflation, what's happening in um in the Middle East. I think those are two, you know, swinging things and could be combined. >> Um I think Jackson Hole will be interesting because is will some of the
results of these group meetings, you know, task force. That's right. You actually we're not worried about inflation and more worried about deflation and then they end up cutting rates which the market may have an
interesting reaction to. They're seeing like near term inflation numbers higher. conference on Wednesday? >> [snorts] >> I don't know. He I think he's still in like trying to figure out what he should
conference. >> he's going to have one though. have to. I think he is. >> If I was a Fed chair I would have one. >> But he like he had like he like the last one he just said
>> He's going to say very little but he's going to have that press conference. You When I came into this business Alan Greenspan was Fed chair and Alan Greenspan used to but Alan you would right. Alan Greenspan came out he'd say
make the announcement he'd close the book and he'd walk away. He didn't take your hand and he didn't ask if you were okay. He didn't ask you you know, take a Xanax and calm down. Nothing. And I thought the markets did fine. Now, the
markets were. >> Yes, but there was the technology wasn't >> Right. >> It wasn't as quick because of the speed of information. >> Correct. The speed and the technology
allows it to be more volatile. Anyway, before we run out of time what do you >> I think cash is trash. I think you've seen sentiment get very very negative in the last week because oil prices skyrocket and usually when you have
time to buy. Also I think we're probably at the higher range for oil prices are start to come down it disproportionately benefits the farm markets. So I'm very bullish on the global economy. >> assuming this war is over.
>> I don't think even if it's not over I can still see prices come back down to >> What if it has right? >> It could. It could but I'm going to say >> I mean we thought it was over a month ago. Everything was signed sealed and
going to go on a long time, frankly. But I But I do think you'll see prices come clearly seeing oil come out in different ways, like Saudi Arabia's got their long as the Houthis don't >> block it.
lot of creative ways to get oil, you know, out of the Middle East. It's not >> one of the things that saved us was the fact that China stopped importing oil. And if they end up needing, like, to come back out into the market, I I don't
know. I just think there was, like, that really helped us, and that we'll >> Yeah, it was pretty kind of remarkable. We haven't been over $100 a barrel, you know, since the conflict started. So I I think that speaks to there is more oil
getting to the market than that they say that 20% that comes through the strait. But I think I think at some point here it lands in the '70s, even if the conflict continues. Um and I think that's the historical average last 20
where oil prices are going to go. >> isn't Is not a lack of supply of oil. in oil. >> It is, yes. But also you have to worry about energy security now, right? If I'm Japan, I'm not going to want to get all
to start to reroute it. So I think there's going to be a premium before. So I think '70s are a normal place. And also, like, keep energy should have been there. >> I do agree with that. We should have
right, Kevin. >> I was so hoping you didn't agree with SMOKING. >> ANYWAY, LISTEN. I appreciate the time. A half hour goes by way too fast. I I'd
like to grab this group together again, maybe at the end of the year, just to where we where we ended up versus where we thought we ended up. Just real quick, S&P target? >> Yeah, I actually had where it is around
watching it go sideways, and I'm like, do I go up or >> No, I was in the 75, 76 range. >> Yeah. know, I think I think um 8,000. I think that's a little
>> I was at 7,500 and I was yeah. >> 8,500, I think it's going to melt up. I >> Oh, wow. >> We're definitely coming back. >> know what? If I'm right, you guys can take me out to Sizzler.
if you're right. >> take you out >> Anyway. >> Done. >> Done and done. Thank you very much for joining us. Until next time, take good
joining us. Until next time, take good care.