00:00 Andrew Serwer
Let’s look more widely on how investors are seeing the markets right now. Andrew Graham is with me. He is Jackson Square Capital’s managing partner. Andrew, always great to see you. Maybe start big picture, Andrew, because this earning season rolls on. We had big a bunch of big tech names yesterday. We got Apple today. Broadly, how would you characterize this earning season? What what do you make so far of what you you’ve seen and heard?
00:30 Andrew Graham
I think it’s a boom.
00:31 Andrew Serwer
Mhm.
00:31 Andrew Graham
I mean, a lot of people scratch their heads and they say, how can the market go up with these geopolitical headwinds and the rest of it. You have 15% plus earnings growth. It’s really hard for the market to go down when you have double digit earnings growth. And I think people also look at the macro data on the side and say, things are pretty good considering oil prices are where they are. And if that’s not there, right? If you remove that, that headwind, where would we be? And and it’s just very, very strong. And then last night’s results, I thought were right down the fairway. um as expected. Um you’ve got higher capX numbers and so forth. So things are falling in line the way we we sort of anticipated.
01:31 Andrew Serwer
It’s interesting. You bring up a good point because you’ll hear this talk of like, this market is very confusing, it doesn’t make any sense. Why, why would it be moving higher? The pushback on that that I’ve heard is exactly your point. As long as earnings expectations are accelerating, then you could, then the market makes all the sense in the world. You stay long, you stay constructive. Is that what your point is?
01:52 Andrew Graham
Yeah, we spend a lot of time working on, you know, looking at all kinds of different factors. But when it comes down to it’s earnings growth and it’s estimate revisions. Stock prices move on estimate revisions. Those are going up as well. They’re going up for a very narrow field of of stocks of companies. But I could see that broadening out especially when the headwinds fade. So, yeah, it’s just very, very difficult for the market to go down. And we were looking at 13% earnings growth when the quarter ended and you’re printing 15.1 or whatever it is at the moment with the blended and the actual numbers.
02:30 Andrew Serwer
Um you mentioned some of those mag seven names reporting yesterday. Did you hear anything, Andrew, um that sort of caused you to rethink or get skeptical about the great AI trade and trend or no, what you heard, you heard these reports, um the Googles, the Amazons, the Medisons and thought, Microsoft’s and thought, you know what, that that trade is intact.
02:59 Andrew Graham
For sure intact. And you’ve got Microsoft and Google together, the backlog there, over a trillion dollars in backlog. And I think the other takeaway was Amazon and and the business they’re seeing, you know, with their own chips. People renting their own chips, that’s the uh Tranium and Graviton trip chips. So having your own custom silicon is a big advantage. and I think you’re going to see more and more of that. So that probably is a little bit more support for the Broadcoms and the Marvells of the world. Marvell’s a partner on the Tranium chip that that Amazon AWS is using.
03:40 Andrew Serwer
Those are downstream winners.
03:41 Andrew Graham
Downstream winners. There’s a lot of implications, a lot of downstream winners. And I thought it was interesting last week, both Arm and Intel at two different events, uh independent events were talking about the inference phase sort of kicking off as you will and if you will, and the um benefits that that has for CPU demand. And so Intel at their earnings call pushed out their uh expectations for uh server, CPU server growth, double digit server growth to 2027. If you take that and you apply the same kind of logic to Dell, right? That’s going to be doing 25% earnings growth this year. Let’s say they do 25% earnings growth in 2027 as a result of all this CPU server demand, the stock’s trading at 12 times forward numbers. That’ll be a 17 earnings number, normalized earnings figure for Dell in 2027.
04:54 Andrew Serwer
And Dell has had a run already. I mean, was it like 60% this year? But you’re your point being yes, it’s had a run, it’s still attractive here.
05:03 Andrew Graham
Yeah, it’s still attractive. I think that you know, the thing with Dell is they’re not selling GPU servers to the hyperscalers. Those guys were filling those orders white box manufacturers in Taiwan. Dell is selling to tier two cloud service providers as well as the enterprise customers and I think this just strengthens the story a lot.
05:27 Andrew Serwer
Did you like, did I read your notes right? Did you like HPE as well?
05:30 Andrew Graham
Yeah, absolutely. They’re both, they’re both selling into that market. I think Dell has a little bit of an advantage when it comes to actually getting all the materials and the supply chain and so forth. And just, you know, it’s a name I think that the engineers know within all these enterprise and and tier two cloud service companies.
05:51 Andrew Serwer
I also, you like networking equipment names. How what’s the thesis there broadly and then which ones?
06:01 Andrew Graham
Well, we’ll go back to this idea that we’re in this inference phase and and uh there’s going to be greater demand for um CPU servers and just from that standpoint. Intel’s suggesting you’re going from eight GPUs per one CPU, right? And now we have to go to four to one ratio. So you’re adding another CPU server to the rack, right? in that instance. And you just have such a huge connect opportunity, right? The attach rates are going up for all these guys. So from a copper standpoint, you’re talking about Amphenol and Credo probably are two two names. And then when you’re getting to fiber and and and light, you’ve got Lumentum and and Coherent. and those are all names that we own.
07:05 Andrew Serwer
Final question. I I just want to take on the Fed this week. What did you make of that?
07:10 Andrew Graham
Well, I think there was what three descents on some language. Um and the language was that we reserved the right to make changes in the future or whatever. Since the last change was a rate cut, then that’s seen as a as a hawkish tilt. I think the Fed’s going to, first and foremost, they’re going to they’re going to make changes based on growth and on on the employment outlook. Um so that I think is usually prioritized. And if core inflation doesn’t take off, I think you’re going to get your two rate cuts this year.
07:44 Andrew Serwer
So your your base case is still two cuts this year?
07:45 Andrew Graham
Yeah. We still have it there. and I think it is, feels a little bit aggressive, but I’m going to stick with that because core inflation and the drivers of core inflation like housing and wages don’t seem to be going anywhere. As a matter of fact, how home prices have been trending lower. So, yeah, we think that’s a um an important part of the story. You know, this inflation thing is, you know, it’s not going to be driven just by oil. Inflation is a monetary thing, it’s a monetary phenomenon. and money supply growth is relatively contained at 4.8 or whatever it is, M2 growth. Yeah, it’s this isn’t 2022. And and I don’t think you’re going to get the same inflation impulse that you did back then.
