Is that a concern for you, or is-- do you think that it's not a, not a real issue right now?

You know, we kinda had a little bit of, um, you know, a, a pretty harsh selloff, uh, after June in a lot of the semiconductor, uh, and AI names.

Uh, it wasn't just technology.

It was also kind of industrial machinery that was tied to data center build-out or connectivity stocks, um, as part of that kind of, you know, data center wiring th- that, that's needed for the capital cycle.

So it's been a group I think that ironically, you know, we kinda had a, had an alleviation in that, you know, semiconductor trade, and now you've got some of the lowest multiples we've seen.

I mean, if you look at the multiple you're paying for Nvidia, uh, Ed, I think it's, you know, uh, you know, very reasonable.

The, the, the market obviously is doubting the earnings, but I think that the re-rating in some of the tech stocks are warranted given that you had a, had a lot of compression kinda coming out of the end of a lot of the reconstitution actually that happened at the end of June in some of the, uh, Russell indexes.

Uh, w- one, are you also concerned about that? But two, the follow-up is, is that priced in? And I wonder if maybe at these multiples, when you look at the multiples on forward earnings especially, that maybe, maybe that is priced in, and maybe this is a healthy market that is, you know, acknowledging the risks.

Is that a concern for you, or is-- do you think that it's not a, not a real issue right now?

You know, we kinda had a little bit of, um, you know, a, a pretty harsh sell-off, uh, after June in a lot of the semiconductor, uh, and AI names.

Uh, it wasn't just technology.

It was also kind of industrial machinery that was tied to data center build-out or connectivity stocks, um, as part of that kind of, you know, data center wiring th- that, that's needed for the capital cycle.

So it's been a group.

I think that ironically, you know, we kinda had a, had an alleviation in that, you know, semiconductor trade, and now you've got some of the lowest multiples we've seen.

I mean, if you look at the multiple you're paying for Nvidia, uh, Ed, I think it's, you know, uh, you know, very reasonable.

Uh, w- one, are you also concerned about that? But two, the follow-up is, is that priced in? And I wonder if maybe at these multiples, when you look at the multiples on forward earnings especially, that maybe, maybe that is priced in, and maybe this is a healthy market that is, you know, acknowledging the risks.

Uh, let's just start with your reactions to what happened, uh, in this ceasefire and how the markets reacted.

Well, uh, and I'll start by kind of, you know, simplifying what we were seeing as we kind of went into this week.

Um, earnings are holding up, but multiples were not.

And to me, that's really the story because, you know, if anything, estimates have gone higher and you were getting, you know, the tech sector at the lowest multiple going back to twenty twenty-two.

So this was really about multiple compression and, you know, this is all pointing to what happened in the oil markets and how that subsequently feeds into the CPI and how that subsequently feeds into the Fed's path for rate expectations.

And as those expectations got pushed back, you started to see the multiples compress more and more and more even though there wasn't fundamental deterioration in the underlying stocks.

And I think that's a real key point, 'cause I think a lot of times when people see sell-offs, they think, "Hey, um, you know, that's because, you know, companies are doing poorly." That happens sometimes.

Mm.

They're kind of going wherever the wind blows.

I think you hit the nail on the head.

Um, I mean, I just pulled up Micron because I wanted to get it exactly right.

Micron is growing forward earnings at seven hundred and thirty-nine percent and trades at five times earnings.

So, uh, that is, um, the market telling you it doesn't know what to do with the earnings profile.

The earnings growth is so egregious to the upside, the market does not know what to do.

So the multiple's being pushed down even though the stock has gone up because the earnings have accelerated so dramatically.

[laughs]

Yeah.

100%.

And the firm was built on low P/E and dividends, and that had worked wonderfully, and there was a bias toward that in the portfolios.

But what happened post-2008 is, uh, challenges set in, and the one that I would identify as a major one was there was factor decay, okay? And that occurred, I believe, because of the proliferation of ETFs and passive money, and I don't think value managers appreciated what was happening, in addition to a new cohort of companies that were growing to the top weights in the indexes.

Value managers just excluded these from the universe for kind of arbitrary reasons.

Maybe didn't pay a dividend.

So they excluded these, and then the factor decay is a big deal because when I joined the firm, I actually joined doing backtesting, okay? In Bara AlphaBuild, I don't know if anyone knows that.

Right.

John Maurer on Baba.

Okay, so Alibaba.

First thing I'll say is they have, um, they have made a commitment to do over 52 billion in cloud infrastructure over the next three years.

That's an enormous commitment to AI.

Uh, you're trading at some of the lowest valuations on an EBITDA basis over the last decade.

We've a long way to go.

They've been increasing their dividend.