Transcript
CAROLINE WOODS:
It’s one of the busiest weeks of the quarter, with big tech earnings, a fed meeting and a shaky tech trade. Here to make sense of it all, as Peter Anderson, founder and managing member of Andersen Capital Management. Peter, so good to have you. Thanks so much for being here.
PETER ANDERSEN:
Thanks for inviting me.
CAROLINE WOODS:
So Peter set the tone for us after a mostly lower July, sharply lower for tech. Are you bullish, neutral or cautious?
PETER ANDERSEN:
Well, it depends on the sectors, right? I mean, I think what we’re seeing right now is a total look back at AI infrastructure build out, CapEx. So those things you can either be bullish or bearish on. And right now I think that the market is tending to interpret this all fairly with some degree of paranoia. Frankly, that earnings season is here.
PETER ANDERSEN:
We’re all watching to see what the CapEx schedules are going to be. And frankly, whatever those numbers are, one can take an optimistic tone or a pessimistic tone. I myself and our firm are fairly optimistic about the build out of I.
CAROLINE WOODS:
So you’re closely watching eye spending. What would tell you that all of this AI CapEx is actually producing measurable returns?
PETER ANDERSEN:
Exactly. That’s what’s happening now is, you know, investors have been fairly patient waiting, waiting, watching these huge CapEx devotions, just spending on AI. And now I think the tide is turning slightly where investors are now starting to say, okay, we’ve been fairly patient, but when do we see the results. And we’re starting to see those results trickle in.
PETER ANDERSEN:
But it’s it’s at a frustrating level, Caroline. And I think if we have this earnings season with a little bit more tangible results that can boost the rest of the year, but that remains to be seen. We’re watching closely what the, commentaries will be for this week’s earnings, frankly.
CAROLINE WOODS:
So you say tangible results, but what is it specifically that you want to hear from some of these big tech companies?
PETER ANDERSEN:
Well, you know, Google has shown us a bit of hint with their, web services. They have talked about that, and they’ve said that their revenues from that component have increased and their margins are improving, and their net income from that channel is improving. So if we can see more of that spirit throughout the other, May 7th, for instance, I think that will bolster, confidence that this is going to pay off.
PETER ANDERSEN:
But it is menacingly frustrating right now because I think we’re not seeing it at the tangible level that we’d like. We would like to see Google as a great example, but we need more of that. And time is their enemy. You know, as long as we keep waiting, waiting to see these results, that’s more stress on the capital markets and particularly these, specific stocks.
CAROLINE WOODS:
Well, Alphabet and Tesla have had a rough month. Alphabet’s bouncing back a bit this week. But still down sharply on the month. We have meta, Microsoft, Apple all higher in July heading into earnings Amazon is lower. Do you think that big tech as a whole will be higher or lower after earnings?
PETER ANDERSEN:
It depends on the narratives. What I’m expecting is that these companies will most likely increase their CapEx spending and add a little bit of commentary on that. You know, you have to get the right reason to increase the CapEx. The the worst reasons, frankly, are what meta said probably about a year ago. I don’t know if you remember this, but their CEO said we have to keep spending because our competitors are spending.
PETER ANDERSEN:
That’s not a good answer. You know, a better answer would be we need to keep spending because we are seeing the results. They you know, we’re forecasting better results as a result of investing more in artificial intelligence. So how they explain why they’re investing more is extremely important. And if it’s just a game of my competitors are doing this.
PETER ANDERSEN:
So I need to do this to keep up with the Joneses, so to speak. That is not a very viable investment strategy for them.
CAROLINE WOODS:
Okay. All right. So there is the earnings driver. But we also have the fed. The fed is expected to keep rates on hold tomorrow. Is the fed still a market mover or does this week’s focus belong squarely on earnings.
PETER ANDERSEN:
Yeah I think it’s compounded actually. You know the fed always seems to be a market mover. And now with a change of leadership, there is more intense focus and apprehension about how this leadership is going to what the style is of communication. You know, I’ve been in this business for over 30 years, and I have seen the transformation of the communication from Greenspan that hardly said anything.
PETER ANDERSEN:
Right. And I don’t know if you recall reading this, but people used to look at the size of his briefcase when he was coming in for a meeting because they would say, well, the briefcase is big, then there’s a lot of information. He’s probably going to make a change. If the briefcase is small, then, it’s business as usual.
PETER ANDERSEN:
So we’ve gone from that then to a period of what I would call over communication, press conferences, every fret official opining and not necessarily singing from the same hymnal, so to speak. They had all different opinions. That was kind of confusing. And now what I think is going to happen with new leadership is we might here roll back that communications to a level that I am actually looking forward to, which might mean, sadly, no press conferences, one statement and not a lot of, interviews by the regional officials because that really confuses the market.
PETER ANDERSEN:
That being said, the reason why this is so important is, of course, the fed, drives markets. And I don’t see that any different now with the new leadership. In fact, I think there will be more, focus on his first several meetings to see if we can get a grounding for his style and how he thinks macroscopically.
CAROLINE WOODS:
Okay. So, kind of TBD on that as well. I was taking a look at your notes. You’re saying expect returns to be driven increasingly by stock selection rather than broad market exposure? Does that mean that the easy money from just buying the S&P 500 is behind us?
PETER ANDERSEN:
I think so. You know, and I think the easy money of just if anything’s has an eye in it, let’s just barrel into that that I found that personally disturbing that, it would be such a gross call like that. And I’m far better and far more, used to, stock picking environment. I think, one of the byproducts of maybe this fatigue, this temporary fatigue, transient fatigue, about I will be the wandering eye, so to speak, to other sectors.
PETER ANDERSEN:
And I think that’s a good thing. You know, some of these sectors have been grossly neglected, and they’ve done very well. I mean, companies like United Rental Equipment, which we’re going to talk about, I think in a moment, you know, that a standard company that rents capital equipment that has really been on the sidelines with a lot of other companies like that.
PETER ANDERSEN:
And I think the time has come for these companies to actually have their day in the sun, like, I has for the past year and a half, frankly.
CAROLINE WOODS:
So we will get to your actual picks. But you talk about these sectors that have been neglected. I guess let’s start broad before digging down into those picks. What are those sectors that have been neglected and that you expect to lead this market in the second half of the year?
PETER ANDERSEN:
Well, I think, the next great computing race, you know, the starting gun has already been fired for that, but it hasn’t been a lot of fanfare. And that’s quantum computing. It is probably in the first inning, to coin a baseball phrase of nine innings, first inning of development. But we think that that has a remarkable runway, and it is a sector now that has several companies, public companies, a handful of them that I think are finally getting some attention.
PETER ANDERSEN:
And, by saying finally, I don’t necessarily mean that the technology is all developed there. It’s an exciting technology and it is still getting developed, but that’s a sector that I think is exciting. It is certainly based on technology, but it’s a very different, argument for supporting compared to, say, artificial intelligence. Okay.
CAROLINE WOODS:
Also like into your go ahead, before we get to the next sector, take into your quantum picks. What are the names you say this is a stock pickers market. So give us your quantum picks.
PETER ANDERSEN:
Yeah. So our top pick is a company called inflection. And you know, I was as a sidebar, I need to tell you, I would fully disclose that I was a physics major and I had a career in physics. So this, material does come rather naturally to me. But you don’t need to know all about the Heisenberg uncertainty principle and Hilbert spaces and Hermitian operators.
PETER ANDERSEN:
This is all stuff that I learned in graduate school. What I can tell you is this there are several ways of, achieving quantum computing, and they’re kind of in a horse race now. And the technology just to simplify, there is one technology that requires ultracold environments, you know, near absolute zero, hundreds of degrees under zero. We don’t like that technology because we think that that’s, difficult to maintain.
PETER ANDERSEN:
Instead, we like what I would call room temperature quantum computing. That’s very different. And that’s far more achievable. And inflection is involved in what I would call room temperature quantum computing. The technological challenge isn’t as great as the super ultra cooled, quantum computing that the competitors use. We think that this has a tremendous advantage and will probably be the leading quantum computing, approach to solving the problem.
CAROLINE WOODS:
Okay. It’s down about 40% year to date. So you would you would buy it here?
PETER ANDERSEN:
I would definitely buy it here. It is not for the faint of heart because, there are competing arguments about how to achieve quantum computing. And, many now are thinking the super cooled approach is a better way. But we think, as I said, the room temperature approach and, you know, you have to be patient with this is not exactly venture capital, but it is, as I said in the first inning of a baseball game, you really don’t know how things are going to play out.
PETER ANDERSEN:
And I would say, thankfully, because I do know about this technology, I do have a higher confidence, I think, and the way to solve this problem, and this does seem to be the better way.
CAROLINE WOODS:
Okay. I see, like rotor is also on your list for quantum. That’s BBC. Q and then kind of shifting gears, I know that you’ve also been, you know, interested in European defense. So tell us what’s changed that made you that’s making you bullish on this space, especially as we think about the back half of the year?
PETER ANDERSEN:
Well, I’ve always thought this was a free gift to investors. You know, with the current administration and the NATO involvement, it was clear very early on that the U.S. was going to take not as prominent a role in NATO. And there’s always been complaints that the NATO members have not been paying their fair share, so to speak.
PETER ANDERSEN:
And so there has been tremendous internal pressure by those, participating European countries to spend more on their defense. And they have publicly stated that that’s what they’re going to do. They’ve also publicly implied that they are not going to rely on the United States as much. So what does that do that puts tremendous pressure on their own building of defense infrastructure?
PETER ANDERSEN:
And to us, it just seemed so obvious that these companies, they were kind of dormant and not in the headlines now, are going to be far more prominent in spending far more capital on building up their own infrastructure. And also add this, unfortunately, the global conflicts, you know, in the Ukraine, in Iran has added to the speculation that there will be more unrest.
PETER ANDERSEN:
And if you’re, you know, Germany or and or France, for instance, I think you’re watching the global conflicts and saying we really need to shore up our own defense. So to us participating in several of these ADRs, American depositary receipts are stocks that you can buy, that will allow you exposure to these European defense companies is an easy call.
PETER ANDERSEN:
And we’ve been, fairly successful with these names, since we own them at the beginning of this year.
CAROLINE WOODS:
Okay. So those names are Rolls Royce r y c e y for the ADR, and then PA systems BS y, you know, both up double digits year to date. You’ve already been owning them. Would you buy them here though.
PETER ANDERSEN:
I continue to hold them. And so you know as a portfolio manager that is the equivalent answer of saying yes, I would buy them. You know, every morning we wake up, we look at the holdings and it’s a brand new day. We don’t really care about how well it’s done for us in the past. We care about how well it will do for us in the future, and that it is a resounding high confidence.
PETER ANDERSEN:
Yes, that those two names. Were you on a strategy called the weather mark strategy 15 stocks, highly concentrated, and those names are definitely in and will stay in until we find perhaps sell triggers. But they have not hit our sell triggers at all. And you know, we spend less time fretting about, valuation. We spend more time saying to ourselves, we have predetermined sell triggers, have these tripped them, and if they have not, everything seems stable and we would continue to hold and buy.
PETER ANDERSEN:
So for instance, when we have new clients coming into the weather market strategy, we continue to buy those names. Yes.
CAROLINE WOODS:
Okay. So is this a call just on the defense space or would you say that international is a better bet overall than the U.S.?
PETER ANDERSEN:
Oh, yeah. A smart question. And I would say it is a call on the defense space. You know, Rolls Royce. And that’s not most investors probably think of the exotic cars, the high end cars. This is the, propulsion division. They build, jet engines and things like that. Rolls-Royce has had a tremendous story of a turnaround, which we love.
PETER ANDERSEN:
You know, the fact that the company was in kind of harder times. New management has come in. They’ve repaired the balance sheet now, and they’re totally focused on growing the company. So that alone attracted our attention. The fact that it was what I would call a semi turnaround. But then on on top of this, the call for it’s more of a NATO play, I would say, than a play on your own investing.
CAROLINE WOODS:
Okay. So of those five picks that you brought to us, Rolls-Royce by United Rentals, which you mentioned at the start, we have Blake Roeder and Inflection. If you could only buy one of them.
PETER ANDERSEN:
Would it be? Yeah. Well, you know, of course we never advocate that a, an investor just buy one stock. We, we are a, somewhat of a fan of diversification, although we don’t own more than 15 or a handful of stocks. But I would tell you that, if you are a risk taker, you know, all these these names have different strata of risks, right?
PETER ANDERSEN:
And I would say the most aggressive name in there is Blake Roeder, because we haven’t talked about that. Let me just add a little bit about that. That is also a quantum computing stock with the same kind of technology I mentioned, you know, room temperature computing. It is a Spac, Spac. And, your viewers probably are aware of what’s backs are and it is going to do Spac.
PETER ANDERSEN:
It’s technically called, but it is going to buy a company that is a quantum computing company has already announced that. Why we’re excited about that is the founder of this company that is buying the company is called Pascal, the founder. His name is Alain Aspect. He won the Nobel Prize several years ago for quantum computing. It was called quantum entanglement.
PETER ANDERSEN:
So what better person can you get to form a company that has won a Nobel Prize in this area? And so I would say of the stocks, this is the most aggressive, but it also is, I think, the most insightful as a potential future. When this company these backs and it becomes a company probably named Pascal as the name of the quantum computing company, and I do think it has a long runway ahead of it.
CAROLINE WOODS:
Okay. And if you had to add a mega cap tech name in there to make it number six, which would it be?
PETER ANDERSEN:
Well, we on Amazon, we didn’t talk about that. But our Amazon is you know, we’re not known to be, as you might tell by the five stocks I’ve given you, you know, to be mainstream players in the everyday stocks. That just we don’t find that that is engaging enough for the kind of research we do. We try to find the next Nvidia, for instance, we own in video ten years ago, actually, and when nobody knew what that was.
PETER ANDERSEN:
So we like to think of these quantum computing stocks as kind of the next Nvidia in our track record history.
CAROLINE WOODS:
However, holding Nvidia for the past ten years would have paid off. Oh. So are you still okay? I was going to say we didn’t sell it ten years ago.
PETER ANDERSEN:
We know not ten years ago. We held it for ten years and we saw that about two years ago. But, for us, Amazon is probably the more classic of the mag seven, and it does have what we like, the two pronged approach. It has a tremendous retail presence. That alone is of interest. But of course then it has its web services.
PETER ANDERSEN:
It’s a direct play or should I say an indirect play into, the whole AI field.
CAROLINE WOODS:
Okay. All right. I think this is a great time to pivot to our rapid fire round of this or that. It’s quick questions, quick answers, no hedging. This is your first time playing with us. Are you ready, Peter? Yeah.
PETER ANDERSEN:
I think so. Yeah I haven’t been practicing. So let’s see how that goes.
CAROLINE WOODS:
Here we go. Tech earnings this week. Upside surprise or disappointment.
PETER ANDERSEN:
I’m thinking that there will be a disappointment. And the reason that disappointment is not necessarily that they will beat their guidance. But there will be some negative interpretation about the CapEx spending because everybody’s so nervous right now about that.
CAROLINE WOODS:
Earnings season bar to high to low or just right.
PETER ANDERSEN:
Well, that is a long answer. I will tell you. It’s just right.
CAROLINE WOODS:
There’s two high to lower just right. It doesn’t have to be right.
PETER ANDERSEN:
Yeah. Just just right. And the reason for that is I think earnings are so, you know, guided and so well communicated that unless you have a real slip you know, pretty much predictable. And that’s a whole other segment. We can talk about my cynical comment about earnings and how companies manage, but that’s topic for another time okay.
CAROLINE WOODS:
Chip selloff warning sign or a temporary reset.
PETER ANDERSEN:
Temporary reset. Because I do think, I the demand for compute is infinite. And this is just people trying to rationalize and just do sanity checks on this. But I do think the demand for chips is not ending. Frankly.
CAROLINE WOODS:
AI CapEx justified or overdone.
PETER ANDERSEN:
Bad is a tough one. I would say it is justified for now and we will see if earnings down. Remember, at the beginning of the top of this interview we were talking about will earnings justify that? But, I am hopeful and optimistic that the companies are still on the right path. Yes.
CAROLINE WOODS:
I ROI sooner or later.
PETER ANDERSEN:
No. Sadly later. I think that it’s still early. We’re starting to see, as I mentioned with Google, some initial signs, but people will still have to be patient. I think that’s what’s driving the market right now. Is the level of patience.
CAROLINE WOODS:
Broadening rally or narrow leadership?
PETER ANDERSEN:
Oh, definitely broadening rally, as we mentioned earlier. And I think that is very welcome. It will rationalize the field and will give companies like United Rental some air time, some stage time that it has been, badly lacking frankly.
CAROLINE WOODS:
Stay diversified or follow the winners.
PETER ANDERSEN:
Always stay diversified to a degree. Don’t over diversify. But certainly I think that that is this is not a science. We can’t predict with accuracy what’s going to happen. And I think diversification does help us hedge that.
CAROLINE WOODS:
More upside from here. Nasdaq or Russell 2000.
PETER ANDERSEN:
Definitely Nasdaq. Because it is the bellwether for all AI, all quantum computing. And I do think that there is more upside, but it’s going to be a rough ride.
CAROLINE WOODS:
On U.S. or international markets.
PETER ANDERSEN:
Oh, us all the way. Except of course, we mentioned earlier, but that was more of a NATO play. So us yes.
CAROLINE WOODS:
Best sector bet for the second half of the year.
PETER ANDERSEN:
Well, you know, I’m going to say quantum computing because we spent a good deal of time talking about that. But certainly quantum computing rough ride again. But we do think we’re approaching the second inning now, that ninth inning.
CAROLINE WOODS:
One sector you’d avoid. Yeah.
PETER ANDERSEN:
You know, I think the energy sector, because that is such in is being contested about if there’s enough supply to build the data centers. And so, on top of that, we’ve got the Iranian conflict that is driving commodity investors absolutely crazy. I mean, I’m sure you your viewers have seen that the oil prices, reflect every day, every news headline about Iran.
PETER ANDERSEN:
So that’s not an investable, sector, in my opinion, because it isn’t based on fundamentals right now. It’s totally headline driven.
CAROLINE WOODS:
One stock you’d sell or avoid right now.
PETER ANDERSEN:
Let’s see if I can to. Oh okay I have yeah. Classic space X I would avoid avoid avoid. And in fact we are I have another strategy that allows us to make bets on companies that we think are going to decline in stock price. And I have, purchased long dated puts on space X.
CAROLINE WOODS:
What’s another stock you think will decline?
PETER ANDERSEN:
That’s not enough space X?
CAROLINE WOODS:
I’m always looking for more, but now I.
PETER ANDERSEN:
Yeah, I’m I’m trying to think, I really don’t have any other stocks in mind, you know, in terms of negative. In fact, the the strategy that I was talking about, referring to, you know, that really has not many short positions in it right now because it is so hard to make a bet against a market that has such buoyancy.
CAROLINE WOODS:
And finally, one word or sentence to describe the market heading into August.
PETER ANDERSEN:
PETER ANDERSEN:
Impatient. And I’m saying that as a result of the CapEx, we have to remind ourselves this doesn’t turn around in a day. You know, you’re going to see Amazon or Google, they’re going to have these incremental changes. But we need to remind ourselves that, you know, the eye isn’t going to suddenly turn on to something. And I don’t know if we have, we out of time because I did want to mention one other example.
CAROLINE WOODS:
Sure. Give us an example.
PETER ANDERSEN:
Okay. So, I don’t know if you read if your viewers have read recently that, a quantum computing company, D quantum, has actually written a contract with AT&T. And the reason they’ve done this is AT&T has outage problems. You know, when there are cell phones that go down or the networks go down across the country, it can be a disaster for them financially and operationally.
PETER ANDERSEN:
And so they try to fix the network as quickly as they can. The old way they were doing this, took them an hour to run the computer program with this new quantum company. They were able to run the program. I think it was 15 seconds to solve the problem. The reason I bring this up is that is the kind of example we need on artificial intelligence.
PETER ANDERSEN:
You know, a tangible example where you have a case study that says a company like AT&T has used the product resulted in a 15 second run versus a 60 minute run. That is a much better example. And I’m looking forward to when the Meg seven companies will actually have case studies like that, because that will bolster everybody’s confidence.
CAROLINE WOODS:
Interesting. All right. I have one final rapid fire question for you, because I’m not sure that I know the answer that you’re going to give, based on this interview, market by year end, higher or lower from here.
PETER ANDERSEN:
I think the market will be higher. I think that, we’ve had some great runs in the past several years. But I do think, given the support that, frankly, the administration has with some of these companies and also the patience that I’m hoping investors will have, we will see improvements by the end of the year in some of these things that we mentioned that I’m worried about, not seeing the results yet.
CAROLINE WOODS:
Okay. So S&P 500 is up. Call it 8% year to date. What do you think that number could look like?
PETER ANDERSEN:
Oh, you know I’m not a soothsayer but let me just take a shot at that. We never predict markets like that. But I would tell you that, 8% is probably a little bit under what I would expect currently. And so if we saw a handle of a 10 to 12% of the end of the year, I wouldn’t be surprised at all.
PETER ANDERSEN:
Right.
CAROLINE WOODS:
We’ll leave it there. Peter Andersen, founder and managing member of Andersen Capital Management. Really interesting insights. Thank you so much for your picks to us.
PETER ANDERSEN:
I enjoyed the conversation.
CAROLINE WOODS:
If you enjoyed this street talk, check out our full interview with Gene Munster. He thinks that I is in the third inning and reveals which Mag seven name he’d sell now.
