Ryan Kelly Talks INTC Foundry, Big Tech's Energy Needs & U.S.-Iran Outlook

and Diane King Hall live from the floor of the New York Stock Exchange. Four of the seven names report this week a big test for the tech sector. The key question investors should be asking isn't if these companies are too big, but whether earnings can justify their wait for more. We want to welcome in. Ryan Kelly, chief investment officer of Legato Financial. Ryan, it's good to see you here at the big board. All right. So it's a big week for the seven. Big week for the tech sector in front of us. What matters the most. Well I'm going to be very interested to see these reports. I think that what we saw last week with Google and their CapEx spending, particularly the fact that CapEx was higher than their cash flow, I think, really spooked some investors. So we're going to be watching CapEx spending as well as earnings very closely. And is free cash flow. The other metric that also matters the most this week for these these names. Yeah, I think it does. I would love to see some monetization. I mean for particularly Microsoft as well as, you know, Google. But then Amazon coming up here, we're definitely looking at the growth of their web web services. Basically people using this massive infrastructure that they're building out. But the profits really aren't there in any other part of of what's happening with AI yet over the past, last week was obviously rocky across the board, but a lot of that is geopolitical risk. It's not just about alphabet, Google's CapEx, Microsoft over the past month has started to stage a recovery. What are you looking for in terms of the your business? Yeah. So Microsoft is is very interesting. I think that, you know, their legacy software has has been struggling and not showing as very positive. I think generally we're really looking at software names and, and seeing if AI is an enhancement or a replacement. So that's a definite test that we're looking at as well. You have said the AI story is expanding beyond the hyperscalers. We can obviously see that through market performance because the Mag seven people are calling the Lag seven this year. Right. What part of the AI ecosystem is most compelling to you now? Memory space is very compelling. SK Hynix is kind of a difficult situation. You have the U. S ADR trading at a pretty significant premium to the local shares in in Korea. So that one's a little bit tough. The same thing with Samsung. It's just hard to access for a lot of investors. Micron is the one that we continue to think is extremely cheap compared to its peers. The one that's gone up, you know, a couple of hundred percent recently, but it's still showing from a valuation standpoint to be pretty cheap. Okay. I'm curious to know your thoughts on Intel, AMD Marvell. They're now big players in the AI trade. How much more or do you see opportunities there? Potentially? Intel's foundry is very, very interesting. They haven't signed on any big names to really become a competitor to TSMC yet, which is really kind of a monopoly for all these chips that we have to have built, at least the cutting edge ones. So I'll be fascinated to see if they can pick up some customers. If not, they're not nearly as compelling, but they might be our only kind of potential domestic competition. I get that, I understand that. Let's talk a little bit about the energy sector that's increasingly being a part of the AI story, especially with the proliferation of AI. I know it's a part of your outlook where you see opportunity. Correct? Correct. Talk to us about how you see it. Yeah. So I think it's going to be extremely rocky over the short term. We've seen oil absolutely get whipsawed. And on a day like today, major oil names are down 3 or 4%. But I don't think the situation in Iran is over. I don't think a lot of these other geopolitical situations are over. Russia and Ukraine continues to be a problem for years, for years. So it's a long term overweight for us. Again, I could definitely see oil dropping 10 or 15 bucks if we get a a kind of enduring situation in Iran where hostilities ceased, but we just haven't been able to do that yet. But over the longer term, I think that any way you slice it, we're going to need a lot more energy over the next few. So you think this pause in active military strikes between the U.S. and Iran is just that. Just a pause. I think that Iran is going to continue to push for the best deal that they can. I think there's a decent chance they try and extend this into the midterms or as close as possible. Obviously, I'm hoping not. But I I've decided I'm not going to make any money trying to guess what Iran is going to do next. And every time we kind of get one of these cease fires, they just blow up in the next few days. So nothing enduring has come through. This is a big week, not just for the tech sector. We get a decision on rates this week from the fed. Are you in the camp that sees this as a holding pattern week? I think it will be a holding pattern week. I know there have been a lot of talk lately about potentially raising rates. I think that there's something of a a need for kind of warsh to, to get some credibility and make sure that that people believe him when he he says certain things and to make sure that they believe he's independent. I think that we're probably going to have a pause. I'd love to see, again, a kind of resolution in Iran. And I think that that'll fix the majority of our inflation problems and maybe won't require us to raise rates, but we'll just have to see. And I want to circle back to the tech sector, where we started our conversation. For retail investors who feel like they've missed out on this AI trade, where else do you see opportunities? Well, in tech, I mean we've actually gotten a pretty nice pullback. So you have a lot of names that are off 20 or 30%. But over the longer term we're looking at some other things. Nucor steel is one we've talked about a lot. Low cost U.S. domestic producer. You see with the pressure on Mexico to put tariffs on Chinese steel, we think that that's kind of got a tailwind behind it. And they're also involved in AI space helping to build out data centers as well. So we kind of like the names where there might be a connection to AI, but they've got a really solid business as well. All right. We'll leave our conversation there for now. Thank you Ryan. All right.