Chip Stocks Powering Higher Despite Risks

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Bloomberg Jun 18 12:53 · 7677 Views

US Bank Chief Investment Officer Eric Freedman joins Caroline Hyde to discuss chip stocks powering higher with Micron outperforming on the day, and how even the odd headwind and geopolitical risks are not hampering appetite for Big Tech stocks.

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Transcript

  • 00:00 But we do still have the odd headwind, whether it be geopolitical risk, whether it's happening in France, whether it's caused China, US,
  • 00:06 but it doesn't seem to be crimping the appetite of big tech at the moment.
  • 00:09 Eric
  • 00:11 Carolina I agree.
  • 00:12 It seems like this is the story that we're hearing consistently across not just corporate America, but also global companies, which is
  • 00:19 if you want to get bigger, stronger, faster, it's not so much a focus on labor,
  • 00:23 it's a focus on technology.
  • 00:25 And to your point, it has been really centered on chips
  • 00:28 and and some of the larger integrated chip providers.
  • 00:30 So
  • 00:31 that's a space that we think is is bought on weakness as opposed to sold at these levels.
  • 00:36 And part of that reason, Caroline is the very consistent CapEx story that we're seeing.
  • 00:41 We have looked across the globe
  • 00:43 and companies that are not just in the the technology industry, of course, but
  • 00:48 whether it's banks, whether it's healthcare providers,
  • 00:51 this push towards what AI and other big data services can provide, we think is an ongoing theme.
  • 00:57 So it's a space that we think that an investor, again, we're benchmark relative investors.
  • 01:00 We want to be at least neutral, if not overweight.
  • 01:03 That space right now
  • 01:04 don't fight the trend basically.
  • 01:06 But sometimes momentum does come to a screeching halt.
  • 01:09 Eric, is there a way of protecting yourself from the downside?
  • 01:14 Yeah, I think it's a great point.
  • 01:15 I mean, one of the things that you you did a great job in the prior segment was thinking about protectionism.
  • 01:19 And look, we've got a lot of data points coming up.
  • 01:21 We've got the July 4th,
  • 01:23 you know, Sunak election.
  • 01:25 We've we've got the the considerations around, of course, the US
  • 01:29 Republican Democratic National Conventions.
  • 01:31 We will hopefully hear some more
  • 01:32 demonstrated policies regarding regulation
  • 01:35 and also on, you know, more more tech specifics, if you will.
  • 01:39 So
  • 01:40 I think it's a space where you can lighten up, but we would not lighten up beyond market weight.
  • 01:44 That's the space that again, we continually think that trend is there.
  • 01:48 What are some things could really 'cause that to go the other way?
  • 01:50 Again, geopolitical risk is one.
  • 01:52 Also, if we do see a creep higher in interest rates, which is not in our current forecast, but
  • 01:57 if we see not just the Fed, but other global central banks push out
  • 02:01 rate decreases, that's something that could also be an issue for valuations on these companies.
  • 02:06 But again,
  • 02:07 it's a market that has to be proven that needs to be sold as opposed to be bought, which we think again, it's still a a good place to be for for investors.
  • 02:14 Yeah, Eric, when you are sort of looking at the broader benchmarks and you're
  • 02:18 focusing your allocation is thus neutral, maybe a little bit overweight.
  • 02:22 And what point do you start to say, OK, we need to broaden
  • 02:25 And
  • 02:26 do you even have to factor that in, particularly when are you looking to diversify, when you're worried about concentration risk when it comes to the AI bet,
  • 02:34 it's, it's critical as an asset allocator to think about the,
  • 02:38 you know, the over concentration.
  • 02:40 If you are going to look at the complexion of the S&P 500,
  • 02:43 that does give us some concerns just about how overweight, if you will, on a normalized basis
  • 02:48 some of that index is.
  • 02:49 But if you look across the pond again, you know, we're we're big believers in IFA as a long term a diversifier,
  • 02:56 but that's largely a value oriented index.
  • 02:59 And so
  • 02:59 given that there is some participation in tech in Germany as well as in the Netherlands and in space like that.
  • 03:04 And also
  • 03:06 to the point made earlier about Japan, there's a lot of feedstock
  • 03:10 implications of of the the chips back and forth from a political standpoint.
  • 03:15 It's not just the chip makers, it's obviously the designers, it's obviously some of the
  • 03:20 by the individual residents that go into the, the chip making process.
  • 03:23 So
  • 03:24 I think the point is, is that you want to be smart.
  • 03:27 I think first and foremost about the OEMs
  • 03:29 and then secondly, you want to think about the the other parts of the ecosystem which are still highly valued
  • 03:35 within places like Japan are, are decent allocations in this environment.
  • 03:38 But
  • 03:39 again, you can't get,
  • 03:40 I think too bearish on the space right now
  • 03:43 just given the backlog of demand that we think we'll still be there for some time.