Goldman Says S&P 8,000 — But Is the Rally Running Out of Steam? | TheStreet Pro's Chris Versace

Hey everyone, it is Julie here with TipRanks and I am once again joined with Chris Versace from The Street Pro and we are going to dive into what is moving the market today and this week. Chris, thank you so much for joining me again. >> Happy to do it, Julie. It feels like it's been forever, but so much to talk about. Absolutely. So to dive right into it, you know, we have futures in the green today, but there is a lot of noise. So we have the Iran talks that are continuously ongoing, Goldman raising its S&P target, AI spending is surging globally. So what is the single biggest thing that you think investors should be watching right now? Well, you know, Julie, the market has continued to zoom higher. You know, I can't count the number of fresh highs that we've seen in the S&P 500, the Nasdaq composite, but from time to time, the market, if you look at its relative strength index, becomes overbought and that's where we are once again. Not saying it can't go higher, but typically when we see something like this, a note of caution uh is something that we need to heed and that that has me kind of look starting to look around for some other areas that may not have risen quite as quickly as everything that seems to be tied to AI, whether it's, you know, chips or memory chips in particular. Mhm. Now, you mentioned the the overbought thing there. So Goldman Sachs raised its year-end S&P 500 target to $8,000, uh which is 25% implied earnings per share growth. But like we said, both the S&P 500 and the Nasdaq are in overbought territory on the RSI. Do we think Wall Street's getting a bit ahead of itself? I do think that's the case, especially when we take a look at the components, right, of the S&P 500, the Nasdaq composite that have really been driving it. And even in Goldman's comments, they they kind of fess up that, you know, a lot of this has been uh in terms of their revision for not only their target, but their comment about earnings growth, it's really tied to that, let's call it AI data center basket. It it cops to the fact that there are other sectors out there that are not necessarily uh uh keeping pace with that level of earnings growth. But, you know, when we think about the market being um overbought and expectations being a little heavy, you know, I start to think about that 25% EPS growth number that Goldman has. And okay, the first quarter surprised a little bit to the upside, but we had exactly 1 month and not exactly a lot of impact from the US-Iran war. And while yeah, we're kind of hearing about getting very close to a peace talk settlement, the eventual opening of the strait. I think the lesson learned coming out of the pandemic is that it does take a while for things to open up. There is lingering pain to be had. And I think it's something to be mindful of given where we are with the market. That is fair. And then I want to pivot to CapEx. Obviously, we've seen a big increase in this in recent years. ByteDance the latest saying that they're eyeing $70 billion in CapEx this year. Um we have Sam- Samsung a new memory plant in Vietnam. So, what does this global AI build-out mean? And is it create some opportunities? I know in your article you mentioned Applied Materials. So, are there some overlooked opportunities beyond the obvious hyperscalers? Well, let's let's think about this, right? And I'm glad you said the hyperscalers, right? Because most people when we think about this this AI wave, you know, we tend to focus in on the four big hyperscalers. But, there are players outside of that, ByteDance being one, but there's neo clouds, data center REITs that have to continue to spend to add capacity and the like. So, what we are seeing is is a massive um you know, uptick in capital spending this year, growing expectations that that will continue, meaning higher CapEx spending in 2027. When I sit back and think about that, you know, level of spending, it tells me there's more dollars chasing more components. Could be chips, could be power, could be other things. It it it tells me that when I look at the semiconductor industry that's already capacity constrained, says that that constraint is going to be with us for a little bit of time. Whether it's AI chips, networking chips, what have you, memory chips, back to Micron. So I I I get very excited about the shares of Applied Materials, which you just mentioned, because it's going to be a beneficiary of that pain point, of that need to bring more chip capacity on stream. And remember, there is needed chip capacity outside of AI and data center, right? We were hearing about shortages that are stifling volumes this year for smartphones, PCs, and the like. So another angle that makes me positive on Applied Materials. All right, very interesting. And then I want to talk about Salesforce, who is reporting tonight. They're down 32% this year. About that, facing real pressure from OpenAI and Anthropic going deeper into enterprise. So we had Zscaler beating earnings, but the guidance did miss after a 58% run that they had this year. What's your read on both? How do we view the Zscaler results, and what are we looking for in Salesforce reporting tonight? Sure. So let me let me take them backwards. So with Zscaler, well, you just pointed it out. Stock had a tremendous run up, 50-plus percent, I think you said 58% in I think 6 weeks, right? So clearly expectations were probably getting ahead of themselves. And if I remember what the company had to say, you know, it delivered a beat-and-raise quarter, and their guidance for the current quarter had a slight miss on the top line. Stock was indicated down 25% today, clearly an overreaction. I think folks are going to want to circle back to this one. You know, I continue to see cybersecurity as addressing a significant pain point, one that is growing as bad actors continue to adopt AI to expand the vector velocity of the attacks that they're making but I think Zscaler's also a teachable moment because you have to remember that after a 58% move, the prudent move, Julie, would have been to have take some of those Zscaler chips off the table. That's exactly what we did yesterday. We had a 38% move in the shares of the First Trust. Let me get this right. First First Trust Nasdaq Cybersecurity ETF, ticker symbol cyber. We took some chips off the table, locked in a 38% gain for pro members. You have to bow to your discipline when the time is right. Oh, you asked something about Salesforce. Okay, let's let's talk quickly about this. You are right, the stock has been down big this year, a lot of concern that OpenAI and Anthropic and others are going to eat the lunch of Salesforce and other software companies. We are seeing them start to move into that space with some acquisitions to expand enterprise adoption of AI. But yesterday we also saw an interesting management move where the CMO of ServiceNow jumped over to one of the AI companies. This tells you that they are extremely serious about this. I want to see what Salesforce has to say about this. From a fundamental perspective, let's track those RPOs, the remaining performance obligations from Salesforce. Let's track their subscription revenue, not on a year-over-year basis, Julie, because we know those numbers will be favorable. Let's look quarter over quarter. If we don't see any growth, that's going to raise more questions. All right, we'll be keeping an eye on that. Then moving to the pro portfolio there, I know you guys recently trimmed ticker CIBR. So, walk us through that decision. Was this a valuation call after the run? Are you rotating that capital elsewhere? What areas are you looking at? What was the thought process behind that? So, let's let's stitch some of this together, right? The market, as we said, is overbought based on the RSI levels. We had a significant run in cyber. So, that was pure portfolio discipline, plain and simple, right? Um when we see moves like that, we really have to say, "Okay, why do we buy the stock? Great. Is the thesis intact?" And it still is. But a significant run relative to the markets, we've got to take a little it off, lock those gains. Uh as a good friend of mine, Bob Lang, once said, "Nobody, Julie, ever went broke taking a profit." But second part of your question, market's overbought, are we starting to look for other areas that may not have participated where things are improving? The answer to that is yes, and I'm in the early stages of tracking some commodities, um coffee, sugar, cocoa, and a few others. Starting to formulate some thoughts. I think you and I will be talking perhaps a little more about this in the coming weeks. All right. I look forward to that. Some interesting areas outside of all this AI buzz lately. [laughter] Yeah. Now, another upcoming thing was each year holder vote on SSS, SuRo Capital there. Can you break down what's at stake, how you guys are thinking about it, and what investors holding this this stock here should know going into the vote? So, I will say first and foremost that SuRo Capital's been a fantastic performer for the Pro portfolio. You know, we we bought it at a couple different times, but it has worked out extremely, extremely well for us. They're a um BDC that's really focused on on high-tech growth companies. And, you know, the key is their portfolio of investments and monetizing them through primarily through IPOs. So, we're excited given what's poised to come in the IPO market. But with regarding SuRo in particular, um if we think about it being, you know, deal-flow, right? They need to have access to quality deals. Um they are are that they're transitioning to an externally managed uh advisor in partnership with Magnetar that has 18 billion under management. So, from my perspective, this transition is going to take a well-run, a well-oiled machine, improve the deal-flow, most likely improve its due diligence capabilities as well. To me, that's positive. So, the shareholder vote is to approve this move to this new structure, this externally managed uh format that's really a JV between existing SuRo and Magnetar. Um so, I I'm voting if I was, you know, asked, "Chris, are you voting in favor of this?" And I've had pro members ask me, the answer is yes. All right, good to know. And then to sum it all up, pulling it all together here, geopolitics, AI infrastructure, software disruption, cybersecurity, all these portfolio moves you guys are making, what is the single best risk versus reward opportunities investors should be looking at right now? You know, Julie, that is a very tough question. And I I say that because, you know, like I said, the market's oversold, uh sorry, overbought, overbought. You would think I would not slip that up as much as I do, but I do. Um I I would say here that going into earnings this week from Costco, I think that presents a great opportunity for folks. Reason being, uh we've gotten a lot of companies that have reported, you know, their comp sales. When you trace Costco's uh comp sales for the trailing 3 months, boy, oh boy, are they impressive. Folks are concerned about the pinch of higher prices, not just gas, but also food. Costco alleviates both. Um I think they're going to put up a good quarter, and I think that folks who aren't paying attention are going to be surprised. All right, well, we're keeping an eye on that. Well, thanks for all of your insights today, Chris. Always very valuable and I look forward to chatting with you in a couple weeks, maybe about some of those commodity picks. That would be wonderful, Julie. All right, we'll talk then.