Why memory stocks could beat Nvidia

[00:07] this is Trader Talk at Yahoo Finance and today we're speaking with Jessica Inskip stockbroker.com, correct? >> It's stockbrokers.com, plural. >> Stockbrokers.com and Phil Rose and many of you know from Opening Bell Media

[00:20] because uh Phil is uh a very very interesting uh interesting personality. talk about that as well with Jessica and Phil. So, thank you very much for joining. Yeah, I appreciate it. Uh look, there's so much going on. Here we are in

[00:33] first half of the year this for every reason the market could have backed off bit, but then we bounced right back. We find ourselves once again kind of in this uh geopolitical firestorm. There's uproar again between the US and Iran and

[00:47] now people are once again starting to get nervous. Oil is now shot higher. Uh the spotlight. What's he going to do? What's he need to look at? He's also announced, you know, five new committees uh and he announced them the names of

[01:02] committees to really to kind of take a introspective look at the Fed and talk why they've been doing it the way they've been doing it and maybe we do it. Which is all very interesting. For me, it's a throwback to the Alan

[01:16] business and then after the great financial crisis kind of, you know, the Fed became, in my mind, a little bit too transparent in the sense that everybody wanted. Thought it created some chaos. So, let's talk about that first. Give me

[01:30] kind of your broad view on where we are, where you think uh the second half of >> Sure. I think markets are incredibly resilient. If we think about the shocks that we've been through, there have been four since the pandemic and we've seen a

[01:44] resilient consumer, a resilient economy, subsequently resilient markets. Now, I'm point, but we have headline risk. We have increased retail participation, which has increased volatility.

[01:56] Increased volatility leads to increased term premium, which links over to the bond market. And so, I think it's requires a little extra effort to actually analyze the market because of all the increased rate of participation

[02:09] and geopolitical tensions, and we have to pay attention to all these various question directly on how I feel about the second half, I think we're going to end up rather sideways, actually. It's going to be difficult to go a little bit

[02:23] higher because of this tension and what's happening with two-year yields. >> Two-year yields attempts to front-run the Fed, so they give us our short-term inflation expectations. The two-year note has been reaching 52-week highs

[02:36] this year, considerably. Even when Kevin Warsh has been opening his mouth, we hit two-year note. >> Cuz everyone's convinced, I think, at convinced that rates are going higher. And I don't think they're going higher

[02:49] lower, I think they're going to stay steady. But people are really concerned looking on the curve and what time frame. It looks like rates are going to go higher on the short term, but lower maybe in the medium, and then a little

[03:02] fiscal deficits. That's the way I'm going to put that. >> Yeah. But I do think there's a worry of short-term inflation expectations, but it adjust, but it's the reaction of the market that matters, which I'm pointing

[03:15] now. >> There are a couple of guys out there, and I think Tom Lee from Fundstrat is one of them, who's got an 8,000 S&P target by year end, which I think is a little bit aggressive. I was in the

[03:28] 7,500 range, which is about right where we are, and if we end there, you're Um but there's someone else, and I don't know if it's Bank of America or Morgan Stanley, but somebody also has an 8,000 an 8,000

[03:41] S&P target. So, Phil, give me your sense of where we are and where we're going. than maybe both of you. I think 8,000 is very within range. I don't think that's a extreme call by any means. And if you look at what's happened with

[03:56] the geopolitical conflict, the Iran conflict, and even liberation day last retail is going in buying every single dip, and they have been rewarded on every single occasion. So, I don't see how any near-term pullback that won't

[04:09] will continue to be right to buy every single dip. And then also, if you look >> Yeah. >> people think that okay, maybe rates are going up. I don't know. That's what the market is suggesting right now.

[04:23] that I still think we're going to get at least one cut before the end of the >> It is contrarian. >> But he was put there to effectively do that, and I know he's got to convince other people on the committee, and he

[04:36] has to also earn his credibility, but I think that it's not that uh tail risk of an event for a rate cut this year, which will I think be pretty >> Well, but let me ask you this question. If he if he forces a rate cut, will

[04:50] people just certainly will the will the left accuse him of just placating to Trump? Because that's what they'll do if they force us a rate cut. I don't think I agree with you. I think the next move will be lower versus up, but they I

[05:04] >> I think most people don't think it's going to happen this year. I'm very out good chance I'm wrong. >> I think Bank of America somebody's got I don't know if it's Bank of America or Morgan Stanley, but somebody's got three

[05:17] >> That's a lot. >> That's a lot. Yeah. Look, there's going to be nothing next week with the end of the month, right? There's no cut there. September,

[05:29] midterm election. It would be very interesting for the Fed to make a move being called partisan. >> I think there has to be data to support >> as there's data to support it, then that's absolutely fine.

[05:42] right? Cuz we're going to get CPI and PPI. We're going to get PCE in July. and you're going to have CPI and PPI before the Fed meeting in September. So, I would agree with you, if the data supports it, you can then justify it.

[05:56] I think it's going to be very difficult to justify. >> Well, here's an interesting variable. If we're getting 3.8% inflation, about that, we're coming off the greatest oil shock, maybe ever, and CPI's only at

[06:09] I I think people expected that to go a lot higher, and it hasn't. So, I think that's kind of a bullish case for why rates wouldn't go up, certainly, but >> I I I think Elizabeth Warren is frustrated that it's not going higher.

[06:24] not going there, right? Or at least it's not going there yet. In fact, I think >> It is. >> It's negative point one per 0.10 of a >> It's supposed to be, um, that's going to be reported tomorrow. This is filmed on

[06:39] we'll have that data when this episode interesting to see how the market reacts to that, right? >> Oh. Well, I I think that if the inflation comes in at about 3.8%, which

[06:54] is forecasting, there's going to be almost no market reaction, because every surprise to the upside, you know, the bad news is essentially taken well by the last year and a half or so. >> Yeah.

[07:09] >> Yeah. All right, so let's talk about this, cuz this week starts Officially. Last week we had Pepsi and Delta, it was very interesting. Pepsi disappointed, and Delta crushed it. They're both talking about the consumer.

[07:22] Pepsi blamed it on the consumer, and then Delta said, "No, the consumer's Which, by the way, I think is true. Every You go to the airports, the planes traveling around, there are Americans everywhere, whether in Europe or just

[07:35] running around the country. Um, so it's very interesting, but this week is going to start that official season. So, that's going to bring us going to be looking at, you know, all the chip makers, the software makers,

[07:48] the memory makers, all the hyperscalers, all looking for uh in my mind a reason perfection, I think. And people keep saying, "Can it get any better from Samsung a couple of weeks ago. They crushed it and they sold the stock. MU

[08:05] the week before that, they crushed it and they sold the stock, right? So, then let's talk about whether or not you think we're in a bubble cuz I don't >> Well, let me preface this. I do not think we're in an artificial

[08:17] about that pre-show and we can we can get into that again. a great conversation. >> was. Um but the bar is set really high this earning season. Valuations relatively are high, but if we go into

[08:32] >> Right. >> All the reason that if there's one look right, they're going to sell them. >> Well, and I think it's forward guidance. And so, this is where we are going into this with headline risk. We're going

[08:46] don't have positive forward guidance, I think that's going to be the the scary part of earning season where the market will not reward it. However, if we look at the S&P 500, it's expecting over 20% earnings growth.

[09:00] >> If you look at the S&P 500 growth index, drill down into information technology, it's 61%. So, to your point, artificial intelligence, that information technology is what's driving earnings growth on the S&P 500

[09:14] the investment that's happening. >> I'm I'm all with you. I think 100%. Do I think valuations are stretched? I think some of them are stretched, but stretch doesn't necessarily mean it's a bubble. >> I agree with that. Contrarian pig take

[09:28] as well and I'm liking the theme today. Uh I think we look at valuations uh too how they inherently work. >> Right. we're looking at PE ratios, we're looking at price relative to expected earnings per share. Expected earnings

[09:42] >> Right. >> relative to the price. So, regardless if want to look at the delta differentiation. And that right now is screaming earnings have increased much more than price has, which thus makes it

[09:57] ahead. >> Well, I I think what's interesting right now, we have these two conflicting narratives in the earning story. earnings growth, which is I think great, and that's what we expect to see because

[10:10] >> Mhm. >> So, it's concentrated on the earning weight S&P, it's outperforming the market cap weighted S&P, which means on a price action basis, it's actually a pretty healthy bull market, as they say,

[10:24] and there's been a rotation, and tech is not actually the mega outperformer as >> clarify one thing, just so the audience understands. When he talks about the equal weight S&P, that's it cuz the S&P is a market capitalization index. So,

[10:37] bigger influence. When you do the equal weight, you take it down, everyone has the same influence, so therefore you get a better read on the broader market action versus concentrated tech. So, when you say the S&P the S&P equal

[10:51] weight is outperforming, in fact, it is. I think it's up 12 or 13% versus the >> Yeah, that's exactly right. And I I think that conflict in earnings expectations and equal weight performance, that's going to come to

[11:05] going to be more right than the other, and I think that's going to be really interesting to watch. Um but for me, if you look at the last, I don't know, 10, 12 years, earnings usually beat by about 6 to 7%.

[11:17] >> And we're expected at 23% for the second quarter compared to last year. So, we could be at 30% earnings growth if we get the historical average of beat, which would be pretty insane, actually. And my sense is that you don't see 30%

[11:32] growth year-over-year when a bull market is ending. So, that makes me pretty >> I agree with that completely. But, do you think that means the bar is set so high that market participants aren't going to reward them if they aren't

[11:46] Micron? That's my concern. >> Right. There's probably a near-term price action risk if the bar is set very high and even if they hit it, then it that should make it a pretty good buy the dip opportunity.

[11:59] >> Agreed. But, I think the conversation was, you know, they crushed it with Samsung or MU, but they the guidance it was great, but it wasn't great enough. I go, how much greater do you want it to be? Right? But, that's going to be the

[12:13] going to look at the guidance and going to say, but it could have been better. to your both your points, I think if it does, I think it's a big opportunity for a long-term investor. Right? Because a day trader a day trader wants the noise

[12:27] long-term investor is looking for opportunity. participants, we tend to also forget the environment. You could have wonderful with headline risk, uncertainty increasing with inflation expectations

[12:43] into that headline risk. And so, oftentimes you'll see Nvidia selling off in sympathy when there was no reason for that to happen. And so, it it is expectations and how markets feel about it, but it's also

[12:57] considering the environment that these stocks are in. And once that shifts, some headwinds. And then I'll I'll I'll Maybe we'll go a little higher out of that out of my trading range.

[13:09] Do you have a range? Do you have an S&P year-end target? >> Um I do not have a year-end target. I don't like calling in targets, but I do look at the market as of a if this then that statement. And right now my major

[13:22] if this is if the two-year finally comes down instead >> of making consistent 52-week highs. And it's not that it's elevated that it's the problem. We can have an elevated two-year note without the market

[13:34] highs. And that's that seems to be the biggest least from a price action perspective. >> Do you think that a return and you probably you I don't know where you were when Alan

[13:48] you weren't in the business at that point. Let's just put it that way. But he was you know, I was I was 20 years old when Alan Greenspan was the Fed chair, right? Um and it was a Fed that was very strict in the sense that he was

[14:03] And he came out, he made his announcement, and he walked away. He say, "Oh, come lie down on the couch and let's take a Xanax and let's talk about came out, he said, "This is what we're doing. You figure it out." and he walked

[14:17] >> I think Kevin Warsh wants to bring it back to that. He's trying to get the He's trying to get the FOMC members not to do the media circuit after the FOMC meeting because it creates chaos. Because you have one opinion, you have a

[14:31] coming out and saying, "This is what we did." But then there's all this internal actually think that's a positive thing that he wants to draw it pull it back. >> I agree with that. I mean, I'm pretty old school in the sense that uh

[14:45] not that I was around for a >> man, you're old school. I love that. >> and I I think Warsh's instinct is right that we should probably be talking less about what's coming and not be It's the Fed's job to be forecasting publicly.

[14:57] >> backed into a corner, and that's the problem with the market because they say it to them. >> I I think that's right. And uh and then I'll let you go, Jess. The one thing I'm watching that I'm more concerned about

[15:11] with the Warsh Fed is these committees he's launched. I know he has five investigations into various >> Internal reviews. >> Which I think on principle it's good, but generally, especially in the

[15:23] government, committees is where initiative goes to die. So, anything committee's responsibility, they're probably going to play the blame game in some capacity, and then nothing's going to get done. So, that that's my concern

[15:37] >> I think it's a great perspective, the the task force. Um I I do like the interesting there has been so many shifts and changes since the great

[15:50] financial crisis with our liquidity system and the way that the Fed translates data to us. Is it a little excessive? Absolutely. The market hates uncertainty. If it's creating additional uncertainty, that's where there's a

[16:02] >> Now, Powell it was where we had those press conferences only when an interest rate decision was made. Powell gave us press conferences every time the Fed had >> Exactly. >> And I loved that though, because Powell,

[16:15] if you listened very carefully, he would give you a sentence every time that to look at in the market to understand where the Fed's head was >> Okay, but there were 50 people in the room, and you hear it's blue, and you

[16:27] hear it's black, right? You hear two different things. He says the same >> Well, that's what makes a market. >> I understand, but that also then creates chaos and uncertainty for the market, which, you know, okay, I get it, but

[16:40] actually. >> I I would love to keep the press conferences if we have less of the Fed speaking consistently throughout the >> Yeah, that that we can certainly take back on. Um he doesn't want to give any

[16:53] forward guidance, but I do think it's interesting that he wants to look at the intelligence, and to me is that rather contradictory because that is >> Okay, well, listen, that which which which is a great segue into this next

[17:08] conversation because we we were enjoying it before this show, and I really think know, and it's a question, are we in that AI bubble, right? Now, I'm in the camp that we are not. I'm in the camp that this we are in an industrial

[17:21] revolution because it's changing the world separate from the dot com era little bit. So, talk to tell let's talk about why your perspective. >> I do think it is not a bubble. We are

[17:36] revolution. I think if we study revolutions going back to steam even. It is compounding. >> That's important to to keep in mind. It is very different. I do think where our

[17:49] argument was coming in is I do think the dot com era was absolutely an industrial >> Okay. >> Which was imperative to what we need now. So, I think that was the era of accessibility where you could look up

[18:03] >> Agreed. >> And now we're in this era of data curation and expert oversight and that leads to artificial intelligence and increases that we saw as a result of the dot com era. I think are compounded and

[18:19] >> Well, okay. I would agree with you that. I just don't see it look I lived through that dot com bubble, right? I mean I was actively employed in the industry during that dot com bubble. Um it was certainly a change.

[18:33] But I don't regard that as an I didn't as I look back on it now. I wouldn't say revolution. I think this is an industrial revolution because it's changing the world in ways that we couldn't imagine. The dot com bubble

[18:47] >> It was. >> Was just you know, it was it was about yes, you could get data you could look stuff up. I agree. But I think this is a revolution much different. I think the companies we're talking about today

[19:01] are real companies with real earnings that are changing the world. >> I don't think pets.com did anything to change the world. >> No, they didn't and which led to their demise and RIP the

[19:13] >> Exactly. [laughter] I think the easiest easiest comparison to make is just look at the earnings today versus earnings in dot com and then you can kind of end the debate there and to me that's that's as simple as it gets.

[19:26] But the the thing that I think is more interesting is the trillion bucks in capex that we're getting for this AI build out. There are very wide ranging economic implications of that. And I think you know, I've heard people say

[19:39] well, it's very inflationary that we're getting all this spend into the infrastructure build out. So that's kind of an an interesting economic variable. that stopped the economy would slow down

[19:51] >> at all. >> Okay, tell me more. >> I I I think it's just part of this new revolution that we're in. You need this happen. And so I think it's a positive. >> I think to split the spread here, fun

[20:05] >> [laughter] >> It's short-term inflationary, long-term deflationary is the way that I see it. And another contradictory view, I really like the contrarian theme we have today going on.

[20:19] financial crisis where we're rewarding companies for stock buybacks because that's what they did with their cash. They are mathematically that helps PE ratios and EPS calculations. Don't we want tech companies to invest

[20:35] >> Of course you do. >> I'm very happy about that. And but I think it's a common market playbook and that's what happens a lot with market participants is this happened and then this happened so therefore that will

[20:47] happen again. And I worst statement you can say this time is >> [laughter] >> This time is different. That is not right. Not the statement you want to be because because

[21:00] >> But these are bigger companies. >> That's right. >> Even SpaceX as an IPO is technically a 25-year-old company. It's more mature. >> They are not There are more regulation requirements to even all the liquidity

[21:15] needs were sucked up by venture capital and PE. And so now it's more mature >> Right. >> And to Phil's point, real earnings. And I like And that's justified by the spend that we're seeing. And I would rather

[21:30] see spend Yes, cash buybacks are absolutely great, but for growth tech that area. >> So, do you think that uh whether OpenAI is even coming. Do you think it's

[21:43] >> Probably next year. >> This whole Apple thing this whole Apple >> Yeah, it's going to be very interesting. But one way or the other, whether it's OpenAI or some other tech company that comes to the surface, what I don't see

[21:58] Hynix. That was seven times oversubscribed. Look at what happened to multi-oversubscribed. Um and so the money's coming, you know, there's this rotation I think in the

[22:10] market that people are taking some money out of high performers to reallocate it to this new area of tech. Do you agree? >> Yes, I think that's true. And I think the Mag 7 have seen a lot of the outflows over the last few months and

[22:22] Hynix or or Micron. And I I think the other maybe retail view on this would be, okay, I've let Google or Nvidia run for 2 years now and made a killing on I'm just going to take profits.

[22:37] >> And I think that's going to continue at that uh pattern because why, you know, if you get 100, 200% profit, sometimes 500% profit if you're in Micron, elsewhere? >> Right, but you're talking about I'm

[22:51] investor that's going to take their money off the table. >> big institutions are never going to completely take the money off the table in any name. They might They might cut a position in Google or Apple or Nvidia,

[23:04] off the table. And no what I suggest as even as a long-term retail investor that >> Sure. >> But especially if you're in and you're mean? That you could trim. But I would never say to anybody as long

[23:19] not changed, there would be no reason to to toss it out completely. >> Well, I think one red flag on the the bullish memory. I've been in my cron. I've been in South Korea for almost 2

[23:33] seeing headlines that South Korean retail investors are putting money into stocks based on loans that they're taking out to buy stocks. That feels a little toppy. Right? And so that one point when I saw these headlines, I did

[23:47] believe in the story. >> Right, but that speaks to stretch the Doesn't speak to it's going to blow up. Right? It's not going to be a this >> it could be bubbly in South Korea specifically.

[24:02] >> Because in if we look at every bubble, the one common factor is leverage and >> Right, okay. >> And what we're seeing is the activity futures and then we normalize once we get to US markets open, but there is

[24:18] some bleed over in the US markets with products that are coming on. SpaceX did products that are coming on. SpaceX did IPO the very next business day. That Monday there were 10 new products. Seven were leveraged, three were inverse. And

[24:30] if we look at the market mechanics of these, it accelerates and creates >> Yes. >> Agreed. Listen, You have to come back cuz we have to continue this conversation cuz we're out

[24:43] But I know you two are good you two are good you're going to be on his podcast in in just a couple of hours. So you know, our listeners can watch that conversation. I'm sorry we ran out of time and I'd like you to come back so we

[24:57] can finish it at some point. Until the next time, take good care.