Transcript:
Caroline Woods
Joining me now is Andrew Graham, managing partner, Jackson Square Capital. Andrew, great to have you back.
Andrew Graham
Thanks for having me back. It’s good to be here.
Caroline Woods
Second time this summer. You were last here in early July. So we’ll check back in with you on on your how your market view has changed. But before we do, let’s talk about Nvidia because Nvidia just delivered another record quarter getting rewarded today, which was sort of the question will Nvidia be higher or lower after earnings.
Caroline Woods
Does this put the AI spending slowdown. Fear is officially too bad.
Andrew Graham
No definitely not. You know it’s just going to creep up again I suppose. I think Nvidia the most you know what you said is up today after earnings. They had four quarters in a row where they had excellent earnings and awesome guidance. And the stock went down. It didn’t go anywhere. And so the multiple is compressed down to 21.5 times as low as it’s been in a decade.
Andrew Graham
Should you own it? Yes. You should definitely own the stock. Is the the questions around circular financing and all the rest of it going to go away? No, it’s still going to be an issue. But hey, our bull market climbs a wall. I suppose a lot of these stocks have to do their own climbing of walls.
Andrew Graham
And Nvidia I think is, is is laying the foundation for the full stack of AI. And that includes, you know, owning the land and and the transportation and all of it.
Caroline Woods
So you say, should you own it? Yes. Should you buy it here? Yes, yes. When you were last on and early July you actually picked Broadcom over Nvidia. Yeah. Do you still pick it here.
Andrew Graham
I’m not afraid of Broadcom or it’s sort of mini me which is Marvell which is going to report earnings tonight. Both I think have a great opportunity I think it’s coming later though. So you’re going to get customer clients or corporates, they’re going to have multiple Asics, right? Different different semiconductors for different purposes within inference.
Andrew Graham
And the probably in my my mind, the guess is that those are the incumbents like Broadcom and Marvell are the ones they’re going to want to go to for a partner in terms of developing those chips. Yes. It’s coming. It’s probably a 20 2829 kind of story. But yeah Broadcom has been a little bit weaker than I would like to see.
Andrew Graham
But I’m not afraid of it at all. And and I think you give it a little bit more room than you would another stock because business is this is.
Caroline Woods
Booming and it has bounced since you were last on. But last time you were here we were seeing this pullback in tech stocks. And you said that was the opportunity to reload. It has since bounced. Yeah. So has that ship sailed.
Andrew Graham
No not at all. I think the the bounce that you got was just after sort of a momentum on mine, which is I think in this cycle, this is probably the eighth time it’s happened and it just happened again. We had three weeks of calm, and then all of a sudden we got into August and you saw, you know, the momentum pairs like down 33% or whatever.
Andrew Graham
So it’s really a unique time. I think it goes back to something which is the pain trade, which is always to look where everybody’s sitting on one side of the boat, you go have to take the other side of it. And I think as we go into September and everybody’s got their, you know, head full of September seasonal weakness and midterm elections, all the rest of it.
Andrew Graham
The pain trades probably too much cash. So I think if you put it to work just look to put it to work. Admittedly it’s we’re in the middle of a summer vacation season, and so it’s a little tough to, like, derive too much signal from price action. But, I think when we get back and September conference season starts, I think you’re going to see, opportunity there because that conference season is usually an opportunity for for corporates, for management teams to guide the sell side lower.
Andrew Graham
I don’t think that’s the case. It wasn’t last year, and I don’t think it’s going to be this year either. We’re in the middle of a just a boom in earnings growth.
Caroline Woods
If I have cash to put to work and I’m underweight tech, if I don’t have enough exposure to tech right now, do I put it to work today or do I wait until September when maybe we see or you know, some of the volatility that we could see around midterms.
Andrew Graham
So what we do a little bit of technical stuff. We don’t like to admit it. And I’m a CFA I to schooled of you know I supposed to know that. But so we you know in the dark, in the shadows, we’re doing some technical work. They’re not perfect yet. They’re not there yet. And we want to make sure we’re buying stuff at the exact right time, because what we found is clients don’t like to lose money, so none of them look super easy.
Andrew Graham
I think Marvell looks good going into earnings tonight. I think they’re going to get rewarded. The deal they did with Google is $20 billion is transformational for that company. And I think the the buy side at the time was at $12 billion. So I don’t know if it’s in a lot of numbers yet. They’re going higher, I would suspect.
Andrew Graham
I think they get rewarded.
Caroline Woods
Okay. So Marvell is a pick your two highest conviction make seven picks. You know, last month or I guess, yeah, in early July, July 9th were Alphabet and Amazon. Would you say those are still your highest conviction picks?
Andrew Graham
Yeah. And, you know, I throw Microsoft in there as well. And I think there is a, just a group of software stocks that seem to be built for this inference, a genetic, economy. Microsoft seems to be one of them. And so does Twilio. You know, it’s looking at the quarterly reports and so does Shopify, believe it or not.
Andrew Graham
And, Cloudflare as well. So those, those numbers, just hockey sticks straight up in Q2. I want to see what they do when they report next. But yeah, that’s that’s an interesting group. I think within software there’s that little niche in there. And those are the names that we’ve identified that I think look good.
Caroline Woods
There are a lot of software stocks on steeper sales and Twilio, which is up more than 60% year to date. Cloudflare is up 50%. Names like snowflake up 50%. So you say those are the beneficiaries of this inference economy. What’s your view on software overall? Do you find any first of all, would you buy those names here?
Caroline Woods
And do you have any cheaper names that you could recommend.
Andrew Graham
We would buy Twilio and here we own Cloudflare. Admittedly it’s an expensive stock right. A very expensive stock. But they’re really well positioned. So you wait for your, your, pick your spot on Cloudflare. I think when you’re talking about sort of the old, you know, the, the, the out of favor software names like, Salesforce, you know, just had a good earnings print.
Caroline Woods
In favor today, up 20%.
Andrew Graham
For sure. And I’m sure there’s a lot of people are short the stock. And you got to cover but they’re you know, they’re they’re showing signs of the ability to monetize their AI product. And at higher, higher levels, higher prices. So good for them. And I suggest, you know, it’s probably going to be others as well.
Andrew Graham
So is it time to trade out of semis in the software? No, you probably have enough dry powder. You could add some for me. I would add those faster names. But on pullbacks, if you get them small pullbacks. But yeah, I would add those faster.
Caroline Woods
If you could only add one snowflake. Cloudflare. Twilio. Which one would it be?
Andrew Graham
I think it would have to be Cloudflare. I mean, it’s been with me for a long time. We’ve owned it for a long time, almost as long as we’ve owned Nvidia. It’s a newer company. But yeah. So that’s, that’s I think the, the crown jewel. But we have bought little bits and pieces of Twilio, sort of adding it slowly as well.
Caroline Woods
All right. We haven’t gotten to rapid Fire yet, but Cloudflare or Microsoft.
Andrew Graham
In here Microsoft. Yeah. At the moment.
Caroline Woods
So across all of tech chips, hyperscalers, networking software, cybersecurity. Where do you see the most upside from here?
Andrew Graham
Networking. Networking for sure. So you’ve got scale across coming which is data center interconnect. Right now there’s about a million ports dedicated to DCI in the United States. That’s going to go to 20 or 30 million over the course of the next four years. That’s a big opportunity for anybody who’s in the Jericho L3 style switch making business, which is Cisco and Arista.
Andrew Graham
And those two names look great. And as you move further out the curve and you get into the scale up architecture, which right now is dominated by NVLink, which is, a product, of course, of Nvidia. That’s all going to change to Ethernet based products that, that these guys makes, Cisco and, and Arista. So those are probably our two favorite names right now.
Andrew Graham
Period. Full stop. And we want to own them for the long haul.
Caroline Woods
Not just your favorite names, though. They’re both up almost 50% or more than 50%. Not too late to get in.
Andrew Graham
Not too late to get in. I look, you know, we look at these things, I look at it every day. Unfortunately, I’m moving around a little bit today but spent a lot of time, you know, checking things out a rest. It looks great right now.
Caroline Woods
So your price target was 7840 by your end for the S&P 500. Are you sticking with that. No.
Andrew Graham
We’re going to lift it based on what we’ve seen from earnings and estimate revisions estimates. You know since the start of the Iran or whatever have gone up 16% for 2026. We’re going to do in the S&P. I’m going to do 32% earnings growth this year, something like that. And next year, if it goes down to 1213 I don’t care.
Andrew Graham
That’s not a bear market. That’s double digit earnings growth. And you don’t want to pick a fight with that.
Caroline Woods
So lift it to what.
Andrew Graham
Sure. 8500. It’s such a tough thing, especially by year end. Like I don’t work on a calendar year and I’m like, on a rolling 12 month basis. That’s all that matters, is that we stay ahead of the curve that way. But, Higher. Yeah. Okay. Okay. Put a number on it.
Caroline Woods
If I had $10,000 sitting in cash right now, how much of that money would you put in this market today?
Andrew Graham
- Okay. Because I think it’s another opportunity here and there. Just kind of waiting for spots. Like nothing looks perfect, nothing looks easy. And a lot of it’s kind of murky because of the time of year, you know, and I think one of the reasons why I think what the Treasury probably stepped up their purchases because of illiquidity this time of year, it’s my least favorite time for the market.
Andrew Graham
It’s dull. It’s boring. The price action doesn’t really mean as much as it should. But again, I think you’re going to have a really bullish September, corporate, meeting season. And, management teams will have an opportunity to sort of guide, you know, whether they give numbers or not. And I think you’ll see numbers go higher at those meetings in September.
Andrew Graham
So we’re looking for September. Seasonal slowness. Seasonality is such a dumb concept anyway for me. And I would come on and and midterm elections, I think 32% earnings growth wipes all out out 12% next year 13% if that’s your guess wipes it all out.
Caroline Woods
So I’m trying to look at the timeline though because that’s what yeah August 27th right now. And you’re saying September is going to be bullish. So yeah the other 8000 of that 10,000. What I having a pullback like tomorrow you think or.
Andrew Graham
Yeah I don’t know. But I wouldn’t say so much pullback. It’s not just pullback. It’s it’s price and time for us. And you you can see it. And we’ve created technical screens that help us get to that moment where you can tell when things are sort of washed out. When things change I think soon.
Caroline Woods
What’s the signal that you’d be looking for? What’s the signal that a retail investor should say? Okay, I think right. Said by my chance,
Andrew Graham
They’re they’re pullbacks to oversold levels and whatever you want to use as your guide there. So if you’re using a slowed stochastic or something like that I think that’s probably the best tool. And then within, you know, good technical chart, Patterson you’ve got to have that fundamental pipeline too. Like the good thing about being a professional is you’ve got all these sell side firms giving you, you know, stuff all the time.
Andrew Graham
You’ve got this pipeline and, and it’s really important that you stay on top of these stories. So it’s it’s tough. Somebody comes on TV and tells you to buy marble and, you know, you might own it for a while and all the sudden the story falls apart. So staying on top of the story is critical. And it’s the fundamentals of our all the names that we mentioned are excellent.
Andrew Graham
It’s just like they’re not quite there yet, and I’m hoping that they get there. And I think it’s just time. I think maybe even who knows, two weeks from now.
Caroline Woods
Okay. We’ve focused a lot on tech. Yeah. What are your favorite areas outside of tech to invest in right now?
Andrew Graham
Healthcare. Yeah. And then, you know, if you want to go back to the seeds now, the midterm thing, health care is the one that acts the best through there. It has defensive characteristics, obviously, and it’s had a good run to Lilly’s our biggest position in the broad health care universe. But we’ve recently added to our dividend yielding portfolio, have a lower beta, strategy.
Andrew Graham
We’ve added some of the, you know, health care services names like Unh and CVS and so forth, grab the dividend and and go along. So, health care would be number one. I’m really interested in retail, and in consumer discretionary. You saw the flash PMI data last week for August. It’s probably lines with about 3% real GDP growth.
Andrew Graham
We did 1.5% real GDP growth in Q2. That’s a pickup in business momentum. And I think that’s what you’ve got to brace for. And it’s almost like the cyclical stocks. And you can put consumer discretionary in that group look like they’re waiting for permission you know, to go higher. And I think that they could release higher as well.
Andrew Graham
I’m not sure which one to pick in retail and apparel and so forth. But in healthcare it’s a lot easier. The pharma names all look good. And I think the, the, the management, health care management stocks.
Caroline Woods
So how do you play the consumer discretionary trade then? If stock picking could be hard because we did hear from a lot of retailers. You’re still hearing from them in terms of earnings. But a lot of winners a lot of losers. Yeah.
Andrew Graham
Our favorite is just the off of price stuff. You know the TJX which is had a big pullback but sort of a weird execution issue last last quarter. And something to do with their buying the wrong, you know, stuff. They didn’t have enough of it. So I would put that on double secret probation. But going back to, you know, Costco, King Costco and and those names, even Walmart after a stumble, that was a one time stumble.
Andrew Graham
So, yeah, if you want to take the risk in the volatility down your account, you’ve got too much tech. Then you’d probably, you know, have those bigger names.
Caroline Woods
Okay. So we have our tech health care consumer discretionary in the portfolio. What’s out of the portfolio.
Andrew Graham
Utilities are out. I’m not sure if they’re over there in a big way either. Reads are very small with us. Again, it fits in that that dividend yield think lower beta strategy and and materials which we which we want to own. But we’re having a hard time, you know, finding the right the right stocks.
Andrew Graham
We own Ivanhoe Electric which has a big copper mine coming online in North America and Arizona, Santa Cruz copper mine in, next year. So I think that’s a sight to look at, but it’s a smaller market cap. It’s not Freeport. Right. Our, HP it’s just smaller. So, that name we own, we do on some Freeport kind of running away here.
Andrew Graham
But, yeah, it’s tough. And materials and the chemicals aren’t going to work if the oil’s moving through the Strait of Hormuz because Dow and Lion Dell, the reason why those workers are using natural gas as a feedstock to make polyethylene versus all competitors globally who use oil. So those are off the board. So materials are tough. Yeah.
Andrew Graham
There’s a lot that’s off. We’re very heavy tech. I would say we’re 55% tech.
Caroline Woods
So you gave a lot of names. I’m sure our viewers will be happy to hear a lot of those stock picks.
Andrew Graham
Yeah.
Caroline Woods
If you could only buy one safest bet of all the names that you’ve mentioned today, which would it be.
Andrew Graham
A risk to? I took a big deep and.
Caroline Woods
I said, that’s not Nvidia. I was expecting Nvidia. But okay. No, no.
Andrew Graham
It’s going to be Cisco or it’s going to be Arista. And Cisco is like everybody’s like, no, I don’t want to on Cisco. So I think it’s their dad’s legacy.
Caroline Woods
Yeah. Right.
Andrew Graham
The old business or whatever. Their products are great. They’re very well received for the data center and of course, campus networking, Swift business, very well receive. And, I just I think that’s the name that’s, you know, you’re going to grab a dividend, sort of a slower name, faster name business. Arista.
Caroline Woods
Okay. Yeah. All right. Let’s pivot to our rapid fire round of this so that although we’ve kind of. Yeah, included a few of those in already you’ve played before. Quick questions, quick answers. No heading hedging. Are you ready?
Andrew Graham
Yeah. There’s no clues either. There is no giving them side.
Caroline Woods
Questions ahead of time. Ready. All right. Here we go. Yeah Cisco or Arista Networks.
Andrew Graham
Also just did that I’m going to go at the moment Arista.
Caroline Woods
Buy this market or wait for a pullback.
Andrew Graham
Well I guess broadly buy this market.
Caroline Woods
Stay invested or raise some cash.
Andrew Graham
Stay invested.
Caroline Woods
Tech buy now or wait for another shakeout.
Andrew Graham
By now.
Caroline Woods
Semis or software?
Andrew Graham
That’s a really good one. I think still semi’s.
Caroline Woods
Chips or networking?
Andrew Graham
Networking.
Caroline Woods
Google or Amazon?
Andrew Graham
I’m going to go with Google.
Caroline Woods
Nvidia or Broadcom.
Andrew Graham
Nvidia.
Caroline Woods
Change of answer there. Snowflake or Cloudflare, Cloudflare, Palo Alto or CrowdStrike, Palo Alto, Okta or CrowdStrike.
Andrew Graham
CrowdStrike.
Caroline Woods
Anthropic friend or foe of the I trade.
Andrew Graham
Wow, that’s a good question. I think they’re going to have to change the way they do things at anthropic, to be perfectly honest. Eventually get there. Maybe, I would say, friend, because they’re on the frontier there, you know? But,
Caroline Woods
Friend OpenAI or anthropic.
Andrew Graham
Oh, boy. I would say OpenAI.
Caroline Woods
Bitcoin at 80,000. Opportunity or.
Andrew Graham
Opportunity.
Caroline Woods
Bitcoin or gold?
Andrew Graham
Gold.
Caroline Woods
All right. Finish this sentence. The one stock I’d buy today is Marvell.
Andrew Graham
Instantaneous gratification. You gotta print this this evening.
Caroline Woods
The one stock I’d sell today is wow.
Andrew Graham
Gosh, that is a hard one. Is there a pass button?
Caroline Woods
How about the one stock I’d avoid today is.
Andrew Graham
Yeah. I would, I would say I would avoid the, the hard disk drive companies. I think they’re pretty rich. There’s room for them to move higher, but they’ve, you know, had such a big run. So, you know, you’re in the Western Digital kind of world, and that stock has been a little bit weaker.
Andrew Graham
So. But Western Digital in there, even though you’re picking a fight with an amazing, you know, growth trend.
Caroline Woods
The next leg of AI leadership comes from.
Andrew Graham
Well, it’s open source models. And it’s going to, you know, it’s going to proliferate faster, with the open source models. And now that Nvidia is in that business, apparently, and others. And that was kind of my problem with the anthropic OpenAI question. I really think that lights it up here. Things are getting less expensive. OpenAI just did a, a price cut, as well.
Andrew Graham
And I think it’s just going to drive adoption really, really quickly. So this is the this is the part where it really picks up. And Jensen had some way of framing, you know, this is the golden age of of startups and so on and so forth. I would believe him when he says that. I know sometimes comes off a little promotional, but it feels to me like that’s the case again, when you go back that second quarter earnings press from Twilio and Shopify and all the rest of it, it looks like crazy hockey stick.
Caroline Woods
So the most misunderstood trade is.
Andrew Graham
I again, I guess the pain trade is, I think, misunderstood when, when and where and what is where. It’s the place to be. And I think, like I said, cash is the is the main trade. So waiting for the midterms which I’ve heard from clients and so on. We love our clients. But sometimes, you know, we’re getting the consensus view and, the pain trades all about taking the other side of the consensus view.
Andrew Graham
And I do know that there is a lot of cash on the sidelines. And so, yeah, keep your eye on that. That’s been the most consistent trade all year. If you can identify where everybody’s sitting, you know, you go to take the other side. And and that’s paid off.
Caroline Woods
The one thing that could break this rally is.
Andrew Graham
I think it’s, widening credit spreads. You know, there’s just so much that you can absorb. The investment grade market can take in, in terms of, of new issuance. And you’ve got, you know, Broadcom $60 billion deal that comes in. It’s hard to bring it to in the middle of summer vacation season. But all the debt issuance that’s coming in $250 billion from the hyperscalers next year.
Andrew Graham
It looks like it’s $400 billion probably. And what they’d like to get done in issuance. And I just think you have to happen a little slower because the the market can’t digest that. They’re not natural buyers.
Caroline Woods
Like the smartest move a retail investor could make today is.
Andrew Graham
I would make sure. Yeah. Know what your own, add, positions when they’re oversold, only. And, try to hang on to the winners as long as you can. So a lot of sage advice in there, but, I’ve been doing this for 41 years. Yeah. You got to sell the losers and keep the winners.
Andrew Graham
And it’s pretty apparent once you buy it, you’re going to know right away if you have a winner or a loser.
Caroline Woods
But you couldn’t think of a loser to sell.
Andrew Graham
I know, I know, it’s rough. I’ve already sold them. That’s the thing. So yeah, we don’t have any losers in the book right now. And those are the names that we follow. So we’re happy to take a realized loss as long as it’s small. Keep it tight, like 15%, and then we’re going to move on. We’re gonna keep that’s like a tax asset and then take that cash and redeploy it.
Andrew Graham
We want to redeploy whatever cash we have right now. It’s we’re finding it difficult, but, you know, we’ll get there, I think, in the next couple of weeks.
Caroline Woods
Okay. All right. We’ll leave it there. Thank you so much. Really appreciate it. Thank you. Lots of good picks, lots of good insight. That’s Andrew Graham, managing partner in Jackson Square Capital. If you enjoyed this street talk check out our full interview with Anastasia Amoroso. She explains why the eye trade is changing and where to invest next.
