Your portfolio may have way more Nvidia than you think

I'm Kenny Pul Curry and this is Yahoo Finance Trader Talk and today I'm joined by John Belton of Gabelli Funds. He's a portfolio manager there and James Taylor from Wells Fargo Adviserss. He is the founder of the Taylor Group and has a very very interesting story. So, we're going to make sure we talk about that because it's all very relevant to where we are right now in the kind of scheme of things in terms of AI and technology and and uh open AI and anthropic and what the community is telling us. So, why don't we just start with you actually and talk about your role kind of your business because it's very interesting. >> Yeah. Yeah. Sure. So, I uh we work with a lot of like engineers in Palo Alto. Um you know that's really our bread and butter >> right out there in the space. >> Yeah. Right in the space. Um, so we have a lot of clients at Nvidia, we have clients at Meta, AMD, Apple. Um, so we're out there very often. We kind of have a good finger on the pulse. Um, you know, we manage about a $6 billion practice. Um, you know, we have a 20 person group. Um, we do a ton around tax planning, estate planning, financial planning, especially around these concentrated positions. >> And you said something you didn't say yet. If you're going to say, it's very interesting because you're mostly millennial and genzers. Yeah. >> Which is exactly what that audience is, the one you're talking about. >> No doubt. Yeah. Yeah. But we have a I think a unique team, a very qualified team, a lot of CFPs, CFAs, but um I would say young team. Um so as this changes have been happening, we've been adopting them and we've been able to utilize it for the benefit of our clients and our practice. Um and we have a team that's really bought into that which has been great. >> Yeah. Okay. So talk to me a little bit about what you do at Cabelli Funds. >> Yeah. So at Cababelli, we're a long only fund manager about 35 billion under management as of the end of the June quarter. Um, and I help oversee our growth strategy. So, as part of our growth strategy, it's collection of funds, open-ended funds. Um, and then we have a institutional separate accounts business as well. >> And so, and so you manage individual besides funds, you manage individual names in there. >> Correct. Spec specifically as a growth fund, you're in the tech space. >> Yeah. >> So, everything we're talking about is right feels very comfortable for you. >> That's what I spend all my days uh doing. So, yes. So talk to me about the latest headline last Friday that came out from the guy John Jacob Coxin from uh Anthropic. He came out and he's creating all this hysteria around around the around the world and actually markets are under pressure. You know overnight Sunday night into Monday Asian uh semi-names got slaughtered. Our names came under pressure. European semi-names come under pressure. Talk a little bit about that. >> Yeah, I think it's it's pretty it's kind of a crazy crazy tweet that you put out there. Um, if you do some of the research, that was like one of his only tweets ever. He didn't have a big following and then they just started pushing it out. Yeah. And then, I mean, I think it's got like 150 million views. It's it's a crazy number. >> Um, I do think I don't know if you saw, but uh, you know, Elon came out, Dario came out and Sam Alman came out as well in terms of talking about slowing it down as well. Um, I think it's interesting. I think I think they probably have a better finger on the pulse than that gentleman that we're talking about, especially because he didn't really have big following. You know, I think there's there's probably a >> Well, he does now. >> Yeah. Oh, 100%. Without a doubt. Without a doubt. [laughter] >> Carlton has probably already gotten it right in a book. >> Wait, I want to ask you a question. Uh, talk about that for a minute because you talk about slowing it down, but who better to slow it down, the government or the or the AI companies? >> I think I would I'd rather not have the government get involved. Thank you. >> Yeah. I think I think regulation around AI is not a good thing. Um, I think that, you know, if you leave it in the the folks that actually know what they're doing on a day-to-day basis, I think that's probably the best way to go forward. Uh, with that being said, I mean, it's it's two of the biggest companies. It's a duopoly with anthropic and open AI. >> They probably stand to benefit if they do slow down because now the their competitors also have to slow down. Why they have such >> They have to slow down. China's not going to slow down. >> I don't that that's what I think super interesting about this too is the government's response to all this today has been don't don't slow down. Yeah. >> So, it's actually the company and >> the current administration because then you got the Democrats are all screaming and yelling slow down. Slow down. >> Yeah. Bernie Sanders all over it. >> All over it. As well as I mean every one of the candidates I heard over the weekend on the Democratic side are all screaming about slow down. >> Right. >> I I guess your thoughts where is this coming from from open AI and anthropic? >> I think I think it's a doomers. It's a doomers. You know, I think there's a there's a group out there that is really kind of pushing this narrative out there that AI is terrible and AI is bad and it's going to kill everybody and where else >> Well, that's what he said. He said it was going to be the end of civilization by I think 2030. Isn't that what he said? We got about four years to go. >> So, I think this is open AI and anthropic trying to get in front of that, trying to take control of the narrative. We've got some IPOs coming up. I think this is more so that than Yeah. >> in my opinion. Yeah. And if they truly believe that and they're going IPO, like how can you go IPO? How can you value your company at $2 trillion, they're going to really slow these things down? So, I I disagree with it. I I don't think it makes a lot of sense. I think that if we do it or someone else is going to do it, right? Whether it's China, whether it's our competitors out there. >> We slow down, someone else is going to speed up. >> Correct. 100%. We don't we don't want to lose this AI. We really don't. >> Right. But that's going to be the argument that we're going to hear and it's going to be interesting to hear how because it's really the left is now screaming and yelling about slowing down. So it's going to be interesting to hear how they justify the need to slow down. I understand maybe the need to regulate for sure, you know, but regulate doesn't necessarily mean slow down. >> 100%. One interesting thing about slowing down though is I think in some ways it it it sort of puts a governor on the industry. it maybe manages some of the risk of overbuilding some of the bubble risk that comes with a technology that grows at this pace. >> Okay. >> So you me take a little bit more measured approach to building out the infrastructure to the investment cycle. It means earnings higher for longer which could actually be good for a lot of the companies in the supply chain. >> And I don't necessarily disagree with that. I think that's I think that's you know smart way to look at it but I always get nervous especially when you know who was it Ronald Reagan that said you know knockk knockock I'm the government I'm here to help you I mean that's those are words you don't want to hear right um and so that's what I think gets me a little bit more anxious about the government suddenly want to get in there and decide how they're going to slow it down when they should slow it down all while the rest of the world specifically China is not going to slow down because they're not going to respond to >> but this isn't the government doing that which is interesting. Well, the companies doing it to themselves. >> Well, which is interesting because you're right, but are they to your point are they really going to Is it a matter of just beginning who said it? Measured. More measured. You said it. I forget who said it. Uh more measured, right? And more measured is okay, but I don't think you can slow down the way that the way that they're talking about slowing down. >> Yeah. Yeah, I thought the interesting thing too is like what would like give us some proof, you know, just show us like what's going on like why they're really concerned and if any one of those CEOs come out and say, "Hey, here's like here's why. Here's the why behind it in a major way >> right now, you know, I think it's all like what if scenarios." This could happen, but is it happening right now? And what is scaring them? You know, if they we get an idea of what's scaring them, >> then that can kind of really build an idea of like what we should slow down, what we should regulate, and what needs to happen kind of going forward, >> right? Let me ask you a question because now SpaceX is the most recent IPO that came out. What I'm sensing, are you getting that same sense that the that the ones on the inside are choosing, they're not looking to cash out yet. They're looking to hold on. >> I think a lot of people at a lot of these companies are are really following the leader. I think, you know, Elon's, you know, one of the best, most innovative leaders out there, period. He's unbelievable. >> Um, you know, same thing say the same thing about Jensen. Um, >> when people have been there for a long period of time, they believe in the mission. They believe in the company. So I think it's more of cashing in versus not cashing in. A lot of these folks that own these companies or started these companies, they didn't really come from much. >> Agree. >> They definitely live well within their means. And you know, nine figures, 10 figures, like that's what they have after these IPOs. That's right. >> For them, they're like, "Okay, if I like getting back to, you know, safety, freedom, and dreams, if I have enough to kind of keep my uh lifestyle the same, my family's okay." You know, a lot of people tend to hold on to these companies. And for us, like you know, a lot of our clients being in California, you know, you liquidate, you know, you're getting you're getting you're also getting crushing capital gains, right? You're giving back 37%. Right off the bat, >> 100%. >> And so for them, like what we kind of talk to about clients, like listen, we're not going to be the person that tells you that you have to get out of these names. What we want to do is create a strategy of how we're going to unwind it over time. >> And if we do unwind in a way that's tax efficient. So like even if you take off, you know, like Nvidia's up what 1500% over the last four years. It's a crazy number compared to the market up what 90. It's like, hey, like you've won already right? >> Yeah. So like you're good. Um so like if do you really need another 25 or 30% whatever the number is? Like I'm not saying that they have to get out of it, but I would say the tax piece is probably much more important to them than the concentration much more important. >> For sure. >> Like they should move out of California. >> Yeah. Exactly. [laughter] >> Did I just say that? >> 100% 100%. So, let's talk about let's talk about the fact that uh there's this thing called the concentration cap trap, right? That people think they've got this well- diversified portfolio when in fact if they really drill down into it, especially if they own individual names and then they own ETFs and then they doubled up and a lot of people don't necessarily realize they're doubled up. >> We talking about index concentration basically like the the I mean, >> so I'm I'm a fundamental investor. I look at earnings and there's yes there's been a big concentration in the index but there's also a big concentration of earnings. So I think >> the concentration to me seems actually quite rational by the market. These are the best companies with the best earning streams, the best earnings growth being valued accordingly, >> right? But I mean, if somebody owns Apple and Nvidia and Amazon as an individual name and then they own the triple Q or the XLK or, you know, the the the DRAM ETF, they're doubled up and tripled up and they don't even some people may not even realize that they're doubled and tripled up. So, it's great to own those names, but not necessarily if you're tripled up and you don't realize you're tripled up. >> Well, you need you need balance. >> That's what I mean by concentration. Like a lot of people don't recognize that that they're that concentrated. >> Yeah, sure. That's something you can speak to. >> Yeah, I think I think that's more just working with like really good adviserss that can kind of point that out, right? >> Um that really shouldn't happen if you're working with like a wealth management advisor. And sometimes it does, right? Like it all the time. >> No, no. It happens more when you're doing it on your own than it does with the wealth man because that's exactly the role. We'd be the ones to say to whoa, whoa, whoa, doub. You're way concentrated. But it's the it's it's retail investors that are doing it on their own that may not necessarily realize that they're >> Yeah. I would say >> as concentrated as they are. Yeah. And I I you know I always say kind of you know one I mean you know to be candid like most of our clients hadn't made their wealth by having concentration right and you sustain wealth by diversification. >> Diversify. >> Yeah. No doubt. No doubt. Um and then obviously the tax piece is obviously another big one. >> Uh but you know for for our individual clients you know something that I always say is like if you're going and you're checking your portfolio every single morning and it's emotionally affecting you. probably too concentrated, right? >> And you could probably like and again that's go like live more, worry less. Like at this point like you're good like you've created enough wealth like your family for generations is great like and that's a conversation that we should be having. It's like how can you like not check your portfolio every single day and freak out about you know these up and down moves. Companies are going to move especially in the concentration especially technology. You know there could be a 20 30 40% draw down right >> the question is has something fundamentally changed with that company? >> Correct. If the answer is no, you should be buying. If the answer's yes, then you should probably be on one. >> That's correct. So, tell us what So, let's talk about let's talk about the potential draw down that's coming because I think there's one that's coming, you know, between now and the midterms. Um, first of all, do you think so? >> It's too hard to call that type of time horizon with any degree of confidence in my opinion. >> I'm not saying it's going to be a 40% draw down. What I'm saying is I I would not be surprised if we saw anywhere from an 8 to 10 or 12% draw down between, you know, and it's already started because the market's already down. So, I'm talking about, right, because we're already down 4%. So, another 8 or 10% it would not be out of the question. >> I would be surprised if there's a draw down in earnings between now and the midterms. So, I think the the economic data is very solid, positively inflecting it seems in many areas. all the AI infrastructure spend that is that's pretty baked in at least for the next couple years. >> It's going to continue to be baked in. >> What would cause a draw down? I think definitionally it's something that we don't see coming. Some sort of negative catalyst. So I I think that's very hard to >> what about a 5% tenure, >> right? That's which which is where we are right now >> which it is today and >> has been creeping up there for a while >> and the market's come under some pressure >> some pressure but we're still within striking distance >> correct it's still within the normal trading pattern I mean look anywhere between 0 and 9.9% is well considered normal yeah >> you get 10% to 19.9% is correction and then over 20 is bare market right so I'm not suggesting that we're going anywhere near a bare market territory but I do think that there that over the as as we move into the midterms that there's going to be more of a draw down just based on anxiety. >> Yeah, I think you made a great point. I mean, we we knocked the cover off the ball from an earnings perspective last quarter. I mean, you can't ask for a better earning season. >> No, probably have another one. >> Yeah. When you tune out all the noise, it comes down to interest rates and earnings. I mean, if earnings are really good and hopefully we don't get like a bunch of hikes kind of going into the end of the year, I'd say that might be a catalyst that can help, you know, from a draw down perspective. But if that earning story has changed and like I said getting back to has something fundamentally changed in a major way I think a draw down a little wash out is not a bad thing. It I think it could be a really good buying opportunity. >> Look and you we just saw that in June right when we saw the semis kind of getting crushed. Microsoft went from 500 to 350 and everyone was screaming and yelling. It was a screaming buy at 350. [clears throat] No doubt. >> Right. I mean where's it today? Back at 500. Yeah. >> Right. And so it's interesting because as a you know maybe more than you because we deal with it more is that you know you deal with some anxiety from clients when they see something like that and why is it why is it it's just part of the normal cycle but you have to be able to you have to be able to talk them into you need to buy more >> you know because the story for Microsoft hasn't changed. >> No doubt. Yeah. I think communication is key there. You know like we're doing monthly calls with clients. We do quarterly reviews and like >> I same thing like another sound bite. It's like your financial plan should determine your portfolio allocation, not like the headlines, right? This headline is going to make a major difference from a portfolio perspective. What's your financial plan? Do you have a good one in place? And what does your portfolio reflect as your financial plan? >> Are you are either one of you concerned about changing anything you're doing based on what happens at the midterms? >> I think it's very hard to trade political dynamics like that. So that's not something I >> So you're not looking at the politics at all. So if there's a democratic sweep that doesn't change. >> That's definitely that that impacts risk sentiment in the market. That's that's that's a negative for markets, >> right? >> Um but I what do you do about that? I think there's a quick move day of and then the markets reset and >> the markets always find their way. I do agree the markets find their way. Um but let me ask you a question about now we got we've got the Fed. We've got uh you know Fed that while the markets while while the probability is that there's going to be a rate hike, the fact is the bond market has already done much of the work. I'm in the camp that the Fed should do nothing. >> Yeah. >> Right. Because the market's done the work. But >> tricky. >> Go ahead. Well, I mean I think I think he the chairman has sort of set set himself a little bit of a credibility trap here. I I think he needs to hike given what the inflation data has done this the the speech he gave at Jackson Hole. I think if he doesn't hike this week that's a the market he loses some credibility with the market and I think if he hikes long end yield curve flattens long end comes down >> and what hap what happens if it doesn't what happens if the long end keeps going higher >> if he hikes and it keeps going higher >> that would be surprising to me. >> Yeah. Okay. I I hope he doesn't. I hope he doesn't. I hope he doesn't. Yeah, you and I are on the same page. >> Yeah, I hope he doesn't. But again, I think, you know, if he does, I you know, I don't think it's going to be major hikes going into the the end of the year. I think quarter points, see how the market reacts the midterms. >> Can you imagine the headline if he hikes? Can you imagine the Trump headline if he hikes? >> Yeah. But he almost has to hike this meeting rather than next month because next month is too close to the midterms. So, I think it's >> I don't think he's going to do either. >> Sure. I don't think they're going to do it now or the next month. You're right. It's >> the market's now 95%. Everyone saying the market has done the work. >> The the the the 10 year I think is over five just over 5% today. >> I think if the if the doesn't hike yield curve steepens significantly, long end big sell-off and that's not good for stocks. >> Is inflation in your mind a problem or is it just an energy problem? I think there's kind of three underlying inflationary impulses in the economy right now. It's a question of whether those impulses are transitory or not or how how long >> you really going to use that word [laughter] >> and I think I think they are. So you've got tariffs, you've got energy, and you've got AI, AI infrastructure build. >> Yeah. >> And I think each of those there's a reasonable case to be made that they are transitory, >> but core Okay. But core CPI was not elevated, which was a little bit surprised. It's way above, but it's been stuck at the 3.4% range for a couple of months. Hasn't gone either way, >> which is a problem. >> Well, yes and no. the fact it hasn't gone up, >> it's better. It's it's a positive worse. It could be worse, >> right? It hasn't gone down, but it hasn't gone up. And I think that's I I think that's the key where he can hide behind that. But >> the longer it stays above target, the more likely it starts to impact inflation expectations, which that's where it becomes a real problem. >> The longer oil stays in the hundreds is going to be a problem. >> Yeah, >> oil in the hundreds is is definitely going to be a problem. And I don't see an end to that situation at the moment. Does anyone see an end to that? >> That that one I can't call. >> Yeah, that's a tough call. >> That's a tough call. I mean, look, it was supposed to be a six-week conflict. It's now turning into an eight-month war. Yeah. So, >> I I don't see end to it at all. But I don't even see by the end of this year, which is going to end up being a problem. It's going to be a problem for the administration. It's going to be a problem, I think, for the global economy because I think if oil stays up in the hundreds, if Brent stays at 110, it's going to be a problem. >> Yeah. >> Right. Diesel's over $6 a gallon. >> Yeah, it's interest. I mean, oil when I started my career about whatever it was 15 years ago, oil was at 100 and that was in 2010. So, um you know, I think the economy can grapple with oil at 100. It's not ideal. Um but we'll see. >> Yeah. Okay. So talk to me about talk to me about um where you see going into late 26 into 27 in terms of market sentiment. >> Um I I think that's going to be dependent on a bunch of things. Obviously interest rates that the meeting this this week is a big one um for sure. Um I think everything that's going on with Iran, you know, same thing. How long does that conflict last? Um or does it get resolved before the end of the year? But do you think we start looking through that the same way we look through Ukraine and and Russia? >> I I think so. And again, when I say kind of getting back to what I was saying earlier, like when you tune out all the noise, it's interest rates and earnings and earnings. Again, you can't ask for better earnings from than last quarter. I think that does continue. Um, I do think if there is volatility and like there is a sell-off in the market, as long as those things haven't changed and the companies are still and again like there's certain companies that are spending like ludicrously that they aren't getting any return on that investment and then there's companies that margins look good, cash flow looks good, earnings growth looks good. I don't care if a company's trading at 25 or 50 times earnings, but if they are coming out and they're increasing their revenue and their margins and they're saying, "Hey, my earnings growth expectations." Yeah. Or 80% 100%. Like some of these companies have just continued to grow and knock the cover knock the cover off ball from earnings perspective. >> I want to buy those companies on a debt. >> Right. But at some point, doesn't it get like a little bit antsy because, you know, Nvidia came out month ago when they when they reported, right? is and and everyone's on edge waiting waiting waiting. But yet he continues to amaze. >> Yeah. >> Well, at some point I have to believe that's not going to be the case. Whether it's Nvidia, whether it's any of the pick any of the other names, you know, MU, whatever. Pick them all. >> I'm sure at some point there's going to be some type I'm sure. I mean, just Well, there has to be. >> Yeah, but I mean people have been saying that for four years, you know, just it's one of those things. So, I think there probably will be a time for that to happen. But even Nvidia, I mean, Nvidia's trading down. I mean, Nvidia's at what 211 or 210 today, you know, down from 230 down on the back of that story. Part of it is that story over the weekend, right? The AI story over the weekend. >> Yeah. >> Um, >> the AI I I do I think this this point on return on invested capital on the AI spend like I think that really does dictate so much in the market right now. >> Agreed. We're going to learn a lot about those questions if and when Anthropic and OpenAI file and start reporting numbers. >> Are they Do you think they're coming this year? >> Well, I I don't really know any better than anyone else. It seems like Anthropic, yes. And OpenAI, no. >> No. Um, but I think the more disclosure those companies provide, the better it is for markets because I think so much of the market, so much of the US stock market today rests on open AAI and anthropic fundamentals and we just we don't see the numbers yet, right? >> So, >> do you think they're coming this year? Open A and anthropic. I think if they start coming out and they are kind of buying into the doom and gloom piece of it, I think it'd be pretty hard for them to go, you know, public because it's like, okay, if they're like, hey, the product we're putting out is going to lead to the end of humanity. Like, >> yeah, >> how can you go public, right? [laughter] >> Hey, I'm going to put $2 trillion into it. Come on. Like, >> that's kind of a tough argument. >> Yeah, it's it's a tough argument. So, [laughter] I'm curious to see what their reaction is over the next, you know, couple weeks and if they really go in hard or >> let's see if this story has legs. this one story that this that this gentleman, you know, started on Friday, whether or not it has legs, it's going to continue or whether or not it dies kind of a natural death. >> Yeah. >> Right. To see uh it's interesting though because Alman and Elon Musk did and Dario Emmedo, whatever his name is, came out over the weekend and did say they should slow it down. >> Yeah. >> Yeah. >> Mark Zuckerberg, I think, took the opposite of took the opposite side of that. I think he said, "No, don't slow it down." >> I don't see him slowing it down. >> I don't see him slowing it down either. >> Yeah. >> I don't see him slowing down. Listen, we're going to run out of time here because we've been talking a while. One quick thing, tell me year end, higher or lower from where we are today. >> Stocks. >> Yeah, the market. >> I say higher. Higher. >> Higher than I think we're at 75 70 or 7580 right now. >> I I say higher as well. [laughter] >> All right. Thanks for joining me, gentlemen. Until the next time, take good care. >> [music]