Jan van Eck: This AI Selloff Could Reveal the Winners of the Next Decade

Is this the top of the semiconductor market in your opinion or is this just some healthy digestion before we see a V-shaped recovery? >> Well, there's a lots of different things in that one question, John. So, I'm going to just first of all jump to I I do these quarterly outlooks and there are a couple of charts. Um it's funny that you picked Korea. You know, look, this was clearly there was a lot of froth in the second quarter. I tend to break up the world into quarters and then, you know, decades. Um and we actually sent out a note saying, "Look, this is probably not sustainable." I think the Korean market right now is around 6,000. Look, it went sideways for like 17 years and then exploded to the upside and, you know, obviously there's nothing dramatic that changed. So, clearly number one sign of froth. Uh I would say Korea in particular because it's dominated by the memory chip companies was a sign of So, there's a whole AI ecosystem, obviously, and there's parts that I think are maybe softer and, uh you know, kind of stronger and more structural. I always ask the question, "If we're looking back in 5 or 10 years, which of these companies in the AI ecosystem have a competitive moat? Which are the survivors?" And there were two areas that um I was sort of wary about coming into the end of Q2. One is these memory stock companies and the the second one is the single model, uh if you will, companies just the uh the front what they call the frontier labs like Anthropic. Because both are just playing one role in the ecosystem, uh rather than having a front-to-back connectivity between customers and compute. So, um the memory chip companies, just to answer the specific question, really benefited. Their profits went up because they upped prices. They weren't able to increase volume that much, John. It was really, "Hey, you need me. There's a shortage of compute, and I'm going to raise your prices." And that's okay for a 1-year or 2-year, uh, you know, game in a corporate America or corporate world, but, um, you know, your customers are going to try to use yes less of your product. And secondly, you're going to have competitors. So, even within the last couple of weeks, a very large Chinese memory chip company came to market. It's now the largest cap in China or it was for a while. So, already this weak part of the market, even though it was a speculative excess, I think is is being attacked, um, in the in the ecosystem. >> Just going to pause there for a second to point out that the market is showing signs of something kind of different happening. And our analysts at Milkroad Pro are all over it. They spent the last couple weeks making a lot of trades, getting out of some positions, and getting into a lot of new ones, getting ready for the next wave of robotic space, or even kind of picking some different AI winners. If you want to see what they have in their portfolios, what positions they're opening, it's just a dollar in Milkroad Pro at the link below. >> Yeah, sure. Okay, so let's unpack this a little bit more. Um, I'm curious your thoughts on the forward earnings of these companies, cuz a lot of the companies that have, you know, seen these crazy valuations, have have seen them come based on the very strong forward earnings, um, but a lot of investors have questioned the quality of these earnings and how reliable these earnings projections are. Where do you land on this conversation? How do you like evaluate the projected earnings from these companies? >> So, let's This is a little bit dated, but I have updated numbers. So, uh, first of all, you can see that these are the big powerhouses of the equity markets, right? They're mega caps, and their earnings growth, I would call is justifying the market. Now, there are two caveats to that. One is that, um, a lot of this profit growth in Q2, and I'll give you the adjusted Q12 numbers, but Q12 was driven by mark-to-market gains in their portfolios because, for example, Google was one of the biggest investors in Anthropic. So, this just shows earnings growth, but if you do adjusted uh so, just operating income that takes out these one-time portfolio gains that these companies, many of them do, you still had really impressive growth. So, Amazon's Q12 year-over-year operating income growth 43%. I mean, that is just incredible. Um Microsoft up 18% operating income, Google up 30%. Again, taking those investment gains out, John, and then Meta is down 8% year-over-year profit. They just were spending a lot of money. They also had some legal expenses that are worth noting, but their revenue um they're still growing crazy amounts for a large company. They were growing 28%. So, there's two things we need to strip out if you're worried about um earnings. One is that earnings driven by by just portfolio gains, gains in investing in other parts of the ecosystem. And let's just double click on that one more time, which is you could imagine a quarter where let's say Anthropic's valuation goes down by half, the accountants, the auditors, the regulators will require these public companies to show that markdown in their earnings. So, I suggested investors prepare themselves in one future quarter. I mean, they're not going to go up court Anthropic's not going to go up every single quarter, right? So, one quarter we could have an earnings surprise, an overall earnings surprise because their portfolio holdings are down. I think if we start looking at just operating income, again the number is 43%, 18%, 30% growth in operating income for Amazon, Microsoft, and Google. Those are still very solid, you know, backward-looking albeit, but very solid operating income growth numbers. So, that's one thing that we need to do to kind of adjust this earning story. And the second is I just talked about the memory companies where they weren't growing unit volume as much as they just jacked up prices. And so, that's also something that, you know, we think is a is a shorter-term blip, but if you take the ecosystem as a whole, I think it's I think we're in really good shape. >> Just going to pause there for a second to point out that the market is showing signs of something kind of different happening. And our analysts at Milkweed Pro are all over it. They spent the last couple weeks making a lot of trades, getting out of some positions, and getting into a lot of new ones, getting ready for the next wave of robotics, space, or even kind of picking some different AI winners. If you want to see what they have in their portfolios, what positions they're opening, it's just a dollar in Milkweed Pro at the link below. >> Okay, so I want to ask about this. It seems to me like what I'm hearing you say is that the fundamentals are still strong, the earnings are still strong. A lot of investors are wondering is like we're going are we going to see a situation where these fundamentals continue to be strong, but all the leverage that's been washed out, the overvaluations, that doesn't come back for maybe a long time. How do you see this playing out? Are you expecting a V-shape recovery or like a longer-term recovery on these things? >> I don't know. I think that a lot of the froth is now gone. I mean, we we see parts of the ecosystem, you know, kind of with exuberance and then being pretty quickly punished, right? There's this recycling. So, I don't have the chart here, but Korea will serve as a good example of this. In the fourth quarter of last year, Oracle, there was a lot of worries you may recall about the finance-ability of Anthropic's compute needs. And OpenAI and OpenAI as well, right? And Oracle and CoreWeave were the public stocks that kind of took the pain there. And they were both down 50% in a quarter. So, over in the course of July, right? You had semis being down 20% and again some of the more marginal players down even more. Some of the Bitcoin miners that are transitioning to compute companies got hit a lot more. 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If you're building payment infrastructure or expanding into Asia, make sure you check out sabre.money. Okay. So, the froth is out. The fundamentals are still there. I want to go back to something Jan that you mentioned in your first answer, which is that some of these companies are, you know, doing well and getting the speculation cuz they've raised their prices. But some of these companies you've pointed out, I think you you've called out Amazon and Google, they stand out to you cuz they have some level of vertical integration at all layers of the stack here. Um AI sorry customers compute frontier models, and chips. Walk us through the thesis on this and what makes these stand out in this market to you? >> So, as I said, uh you want to look at the ecosystem. I'm, you know, I like to talk about history a lot, and people keep talking about railroads um as, you know, kind of the quintessential bubble or the internet bubble, right? So, again, what which companies are going to survive? The one thing you need to think about, I think, is the market structure of the industry. So, railroad stocks in the United States peaked before the technology was built out. So, before the transcontinental railroad was built in the 1860s, railroad stocks kind of peaked in Europe and sorry, in the UK and the US in the 1840s, just sort of big picture. But, a lot of those railroad companies, you know, they weren't really a complete ecosystem, right? It was only like the railroad from, you know, one end of Pennsylvania to the other or New York up to, you know, Connecticut. These weren't companies that like really provided the full ecosystem. So, that to me is, you know, the transnational railroads, if you will, are that full solution end-to-end for customers. And so, I think of of Google and Amazon from that perspective. They have the This is all about the American consumer, right? So, do these companies own the American consumer or have a big market share? Absolutely, right? Google, Amazon, Meta does as well, right? Then, are they vulnerable or do they own basically the compute that they need to provide those services to those customers in the sustainable manner? Then, do they have leading hardware, I call it leading software, these frontier lab models? And they also have some of the physical infrastructure. They're starting to design their own chips. And so I think those companies are just with that vertical I call vertical integration, you know, more have more of an economic moat. They're more protected. I mean, unless they lose their touch with the consumer at the front end, I can't see any technology change where they can't adjust and and continue to service your the US consumer, which is the biggest market in the world, right? I can contrast that with companies like the memory companies or just the chip companies like an Intel or Cerebras where only they're only really providing part of the ecosystem. And I personally think they're just much more vulnerable. And then also those single LLM models in the in the third category, they're software, but they're also right now they're they're trying to reach into the device and they're trying to they clearly have the customer, at least OpenAI does. So the question is how quickly can they build out the compute? >> Got you. And I want to keep taking each piece of this as we go, but that that's helpful on the outlook for Google and Amazon there and what distinguishes them. But in this hardware section, you you call out Nvidia here. And this for a long time had been the big darling of the markets and has since been, let's say, choppy for a little while. What what makes Nvidia stand out to you? What do you think makes it so attractive here? >> Want to stay ahead of the biggest technological shift in history? [music] Subscribe now to get insights straight from the sharpest minds in tech and finance. 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