Northeastern’s Muscolino on Investing in Markets

Yeah, I was actually going to ask you about that because today we're to level set.

This is Monday, September 14th.

You know, AI Armageddon was the talk of the weekend.

And today, software stocks are absolutely ripping because, you know, of concerns about cybersecurity and things of that nature.

So, yeah, we've seen quite a shift from, you know, originally the software names getting wrecked at the end of last year and into this year and then having big time reversals and the opposite move for some of the memory and chip stocks.

If you'd have told me, I just talked to my students, we started the semester last week, and I said, if you'd have told me that I would ever see, you know, valuations flipped for semis versus software, you know, software for multiple decades now, I've had, you know, multiple of revenue, multiple of cash flows, you know, 10 times revenue, many of them, 20, 30 times cash flow, many of them.

And semis have always been cyclical, right? So you always have to be cautious about inventory build and then charge-offs.

And I just bought a Sandesk, two terabyte drive, solid state drive on Amazon.

And I said, how unfortunate.

You know, I had bought one of them a year ago.

It was maybe, I don't know, 170 bucks.

And now they're almost 700 bucks, right? But you should see the price volatility on those products, even within, that's just a consumer, right? Imagine what could potentially be going on within enterprises.

I mean, you know, the prices are fluctuating.

If you were to tune into Best Buy, see, this is a research angle, right? Amazon and some of those players, you're seeing, you know, 5%, 10%, 20% price fluctuations almost weekly in some of those consumer products, right? So imagine if you did have...

This AI slowdown and price points had to adjust.

What ends up happening a lot of times, right? And especially in semis, customers will double order.

Happened during the internet bubble.

Happened with Cisco, right? Some of those companies.

Because they wanted to be a shorter product.

And then when things kind of look more visually... computable and the growth rates seem to be more rational, you know, that's when the margin hits started, right? So that flipping is just crazy to me.

Maybe if they had both stayed at high multiples at some point, but I do think that the stickiness of higher valuations, you know, seems to be more stomach turning for what's happened in semis.

And I think there was someone from Oakmark on CNBC last week in the morning you know, talking, they have a seven-year horizon.

And he said, you know, we really think that software is really attractive.

So I think software has reacted to the slowdown in top-line concerns, but I don't think there's been a lot about the productivity they could gain from advanced technology right on the cost side, right?

Yeah, it's interesting.