00:00 Speaker A
And so when you’re looking at many of these meme stocks, which don’t necessarily have that three to five-year time horizon of out earning the cost of capital, or maybe it’s possible, but we don’t know what that game plan is. I mean, do you think that investors are making a mistake or, you know, are some of them just kind of trading these things? And so it’s not they’re not necessarily viewing it as a buy and hold fundamental investment.
00:30 Matt
Well, I think that’s certainly a an important distinction. If you’re trading it, that’s that’s different than investing in it for, you know, a longer-term time frame. Uh, but one factor that that I think probably is a useful tool in a lot of investors portfolios is the importance of price momentum or fundamental momentum as an input to their investment process. A lot of these companies do have uh, do have price momentum behind them over the last 12 months, over the last six months been very, very strong. But I think for this to persist into the future, these companies also need to demonstrate fundamental momentum. Okay, growing revenues, growing earnings, uh consistently out earning their cost of capital for this to not only just be a a trade but turn into a sustainable investment.
01:21 Speaker A
And so Matt, let’s broaden this out because there are certainly other areas of the market that have been speculative besides the memes. There’s a lot of talk that the largest companies in the stock market could be in a bubble. I’m talking about the Mag 7 and the concerns over AI. So sort of extrapolate what we were just talking about but talk about these big stocks and whether you think um that they have gotten out ahead of their skis.
01:54 Matt
Well, we’re talking about a very different quality profile. Let’s just first uh, you know, underline that point. Um companies that are in the magnificent 7, so companies like Google, Microsoft, Apple, um as an example, you know, far outseed out out earn their cost of capital sustainably and they do it consistently. Uh now a lot of the the fundamental momentum behind these these names last few years has been driven by, you know, the AI compute infrastructure build out. The sustainability of that I think is is the question mark. Um, you know, so far this year we’ve seen continued upward revisions as it looks as we look to 2026. Um if you look at the four largest hyper scalers, estimates for 2026, uh Cax have risen by over uh over 40%. That’s a significant number. Uh over another hundred billion dollars worth of of Cax is expected for 2026 on top of the 300 billion that was uh pencilled in at the beginning of the year. and so that is that is investment that’s going to flow to the Nvidias of the world, the Broadcoms of the world. Uh it’s just the question of um ultimately the return on investment of all of this uh all of this investment. Um and so certainly, um these companies have the cash flows to uh continue to spend. It’s just whether or not they’re going to continue to spend from from their point of view of seeing that return on that investment and it’s just simply too early to tell at this point.
