How much, though, Shannon, of the derating is due to the fact that they are now spending so much on CapEx when historically they've been capital light, not as capital intensive? And how much relative to kind of the new profile of these companies do you think these valuations make sense and do still present upside given just the fact that they are issuing a lot of debt, issuing a lot of equity and spending more on the AI build out?

Well, I think we're going to start to see some meaningful dispersion, Leslie, as it relates to the funding of this CapEx.

Absolutely.

Have these companies become more asset heavy? Absolutely.

However, if you think about the continued drivers of growth, And the expectations were for a stronger and more resilient economic backdrop.

We heard that from Fed Chair Kevin Walsh, this optimism, if you will.

If you come to, should these re-rate back up to multiples of previous? Probably not, given some of that free cash flow cannibalization.

But I'm curious your take, just given where you think we are in the cycle and whether the higher cost of financing will really move the needle at all.

How does the risk management work like that in your portfolio?

Sure.

There's generally a number of layers of risk management.

For better or worse, we operate in a relative world.

So first and foremost, it's generally relative to whatever your benchmark is.

If it's absent from your portfolio, that's a risk too.

You've chosen not to invest in that particular name.

This has been kind of a steady travel thing.

Is the recent price action enough for you to maybe alter game plans, or do you stick with what's been working so far for you guys?

So the way that we've been positioning has really been around quality, technology, and then barbelling that with more cyclical names in areas like energy, financials, and industrials.

We see this current CapEx cycle as l- not, not, not necessarily just limited to what we've seen from an, a CapEx perspective on the AI side.

We believe that we're on the precipice of a broader industrial inflection, and we wanna make sure that we have the positioning in place to benefit from that.

I think over the last several months, investors have tried to move from hyperscalers to this next leg of the trade, which is hardware.

But the idea that there's going to continue to be a very concentrated smaller number of names that all of the benefits of the AI are going to accrete to, we believe in our view is just too narrow a view.

So our, our, you know, our playbook, if you will, in the second half of the year and then into 2027, is to be looking at areas that are companies that are going to be putting forth CapEx, that are gonna be, again, like Apple, you know, benefiting from what's already in the ground, what's already been spent, and then being able to integrate that into their businesses.

Shannon, with that in mind, if the economy is, if we assume, because the data suggests that, doing relatively well, does it make the case that this broadening out trade, this kind of move or tilt towards value away from growth to small and mid caps away from large caps, the broadening out of the base, does it, does it have legs? And if so, how exactly do you do that? Do defensive sectors then come back into play?

Six months on, tell everyone where has it lived up to expectations, and what do you think is more promise than reality?

Well, if we had been hard pressed, we probably could've come up with five AI themes coming into this year.

And so we have two, so this is the first one.

And I think one of the things is that perhaps we've seen this materialize a bit faster than perhaps we were anticipating coming into this year.

We have hyperscaler CapEx running north of actually 800 billion now.

We're looking at the potential for there to be kind of meaningful continued investment across not only the tech sector hyperscalers and in chips, but also in all of the components that go into sort of the data layer and the rest of the stack that we see from an AI perspective.

We also have seen, you know, countries outside of the United States get pretty darn involved this year.

[laughs]

I don't, I don't really know how else to put it.

It is this catalyst, Scott, where we were concerned about disintermediation in February, came into March worried about the conflict, and now we're back to AI, but on the hardware side.

And I think that's an important piece here, is that there is still a significant amount of build that is required.

And have we pulled a little bit of that forward? Perhaps.

But this is just an extension of the broadening out of AI spend and the importance of it as a tailwind for the second half of the year.

You couple that with better than anticipated economic data and continued renewal in the manufacturing sector, and there's just a lot of length of this market where you can find attractiveness, and it starts with earnings.

And so I think equity investors are being rewarded for looking forward over the next six to 12 months and seeing that that earnings growth is going to deliver, not just in AI, but in other parts of the market as well.

some perceive to be the memeification of some of these stocks? What, what do you make of that? Does it give you pause at, at all or is it, is it just fine?

And I'm just curious whether you think that's the, the, the component of the market that will continue to be a driver or if it will broaden out from here.

Well, to be candid, we've actually been calling for this broadening out for the last year and a half or so.

And so, um, our view was coming into 2026, we continue to be very constructive on value and, and think of value being cyclicals, um, because we expect there to be this inflection higher in global industrial activity, global manufacturing.

Our expectations for GDP were 2.5% plus coming into this year, and so really an underlying foundation for, you know, continued economic ac- uh, acceleration.

The, the...

What's changed, I guess, in terms of our, um, upgrade of large caps is that we have seen the opportunity for some of the technology stocks, other sectors, parts of the industrials and utility sector, which perhaps were a bit vulnerable from a valuation perspective last year.

We've seen that margin compression coincident with continued earnings growth expectations that have been ratcheted up.

Do you feel like this space has really hit a sentiment bottom yet? Or as more of these companies continue to report over the next couple weeks, we could see some choppiness?

... and advisors, what are, like, are they feeling exuberant?

No, but I, I...

So I think two things have changed, and, and I don't disagree with your point in terms of, what does retail mean? Because I think if we go back a couple of years, we talked about the, the birth of, you know, the rebirth of the retail investor, and that was really, you know, gamification of our industry.

You know, how much are we, uh, spending too much time online, trading stocks, versus being out in the world during COVID? I, I wa- I think actually what's happened is that there just has developed into sort of three buckets, which is, um, it used to be just retail and institutional.

And now what I think is, is, is institutional is there are portions of institutional that aren't big pools of capital that are run by pensions, that are run by schools, that, you know, are sovereign, sovereign wealth funds.

I actually think institutional is that increasingly advisors such as, as us, I'm pointing to you 'cause you guys are in the same boat as I am, we've developed, uh, institutional frameworks and mindset that we're applying to the challenges for what have been traditionally retail investors.

And what that implies is that we're being, we're...

(laughs)