AI Trade Shakeup: Where Are Investors Finding the Next Big Opportunities?

Morning trade.

We're looking at the major US stock averages higher, but a clear example of the AI trade faltering last week was Oracle's performance.

We saw Larry Ellison's company plunging 19%, its worst weekly drop since the dotcom bus.

Now Oracle facing lingering fears that it doesn't have the capital to maintain its investment in AI.

Now growing AI skepticism and evaluation fears sinking tech and.

The S&P as well as the Nasdaq on track for their first losing months since March, and even Micron hasn't been spared closing the week in the red last week despite blowout earnings and not all tech is slumping though with the embattled software sector surging on Friday and possibly catching a bid in terms of rotation.

While Wall Street analysts are still bullish calling for a stronger earnings growth from the.

Infra boom.

Well joining me as we kick off a holiday shortened week is Michael Monahan, partner and portfolio manager for Founder ETFs.

Michael, great to have you back.

Thank you so much for joining me.

Great to be here, Remy.

Well, this is an interesting week because it is a holiday shortened week, but we are also wrapping up the first half and heading into the second half.

So tell us what's happening in terms of rotation.

So as you saw, we had a rotation out of some of the big AI names last week.

We're bullish long term on the software names, so we think eventually we're going to see some of the capital come out of the semiconductor names and back into software.

We think that rotation in the near term was a bit overdone, and we think the AI trade will remain strong.

For example, you just talked about Oracle on your lead. were big Oracle bulls.

We think they've got plenty of capital for their buildout.

And of course when it comes to artificial intelligence from a technology as well as an investment perspective, there's a lot happening below the surface, not just in the US, but also overseas.

So how are you looking at artificial intelligence as we wrap up the first half?

We believe the trend will continue not only the CPE super cycle that we're seeing that's been driving all the downstream names whether it be Micron or SK Heinx, but we think that the trade will continue.

We think that we're not going backwards and the thing to watch is we think these models need to come out faster rather than being constrained as you see the Chinese are releasing their open source models.

So I think that our frontier models need to be on the forefront to make sure that we're leading not only on the models, but also that Nvidia is the chip of choice rather than non-US manufacturers of chips.

And when we look at a name such as Micron, for example, we saw so much volatility in the first half of this year.

So what tech names are you most confident in while we continue to see this weakness?

So we're most confident that we'll see a rotation back in enterprise software.

There were some fears at the beginning of the year that all enterprise software would get vibe coded away.

We don't believe that.

Jamie Dimon is not letting anyone vibe code his mainframes, and so we think that the enterprise software names will be the trusted endpoint and trusted security of the data in the enterprise.

Yes, and it's really interesting because when we take a look at the economic data, whether we're looking at data, productivity data, or labor market data, we see how artificial intelligence is also affecting the economy as well.

So when we're looking at some of these areas, I know you wanted to talk about the SAS apocalypse.

What are you bullish on and what do you bearish on right now?

Why?

So we're most bullish on Oracle, Palantir.

You and I spoke before we went on air talking about Salesforce.

We're very bullish on Salesforce.

We think that you'll see.

A model moving away from human seats into AI compute and agentic AI, and we think that Salesforce will be able to price for that.

And at the same time when we take a step back and look at the leaders and laggards of the S&P 500 in terms of sector, energy for now is still leading the way higher, but we have to also keep in mind that geopolitics are something that we're continuing.

To monitor, but we're also looking at information technology soon after that, followed by industrials in terms of the leaders for the S&P 500.

So when it comes to the impact of the ongoing Middle East conflict, what is important to keep in mind for the broader market?

So we watched three waves.

The first wave is the Middle East conflict and how it affects energy and inflation.

The second wave is the AI.

Out and the third one is the bouncing between the two poles on jobs, right?

You have the fear side that AI is going to replace jobs.

We don't believe that.

We think humans with AI will replace humans not using AI rather than AI replacing humans.

And secondarily, now the fear is jobs grew too much, right?

And that's what caused some of the sell-off in these high growth names as people feared that we wouldn't get a rate cut.

And now we have people talking about.

Increase in rates.

Yes, absolutely.

And this week the ECB gathering in Portugal for that Centra gathering and Kevin Warshch will be speaking as well.

But Warsch had his first Federal Reserve meeting and presser, and of course there are some surprises.

But given where inflation is right now, it does still remain elevated.

What are your expectations when it comes to the broader market as well as some price targets for the second half?

So if you'll allow me, I'll make one more comment on inflation.

We've been talking about something we call a phantom rate cut.

So we think even though the data is showing that the economy is heating and usually the Fed would cut rates, we think given Warsch's positioning, we think he'll be given a pass, won't raise rates, and we think given the economic backdrop that's a Phantom rate cut as far as back half of the year, we don't have any published numbers on where we think the broader indexes will go, but we think we're going to continue to see strong growth again.

We had a great jobs number.

Main Street is recovering, being led by restaurants, which is a leading indicator.

So Main Street leading will drive a healthy Wall Street.

So we think the back half of the year will be very strong.

And finally, before I let you go this week, we will be getting key jobs figures in the form of the employment report, but we also get the jolts figures as well as ADP and weekly jobless claims.

So when it comes to the headline number for jobs for the month of June, what are your expectations?

So again, we don't have a specific number we're watching.

We're looking at the broader trend, and for us, we want to make sure that our thesis is going to remain intact, that AI is not.

Replacing jobs that AI is simply amplifying human workers and that's what we want to watch.

And as long as we continue to see that trend, we're going to be bullish on the economy.

And finally, before I let you go, there's this question about, given the fact that the conflict in the Middle East may be stabilizing and oil prices are lower right now, when will Americans see relief, not just when it comes to paying out the pump, but when it comes to costs.

Look, I think we've got to get the Middle East settled.

You know, we're starting to see this.

We're almost there and then it flares back up.

We're almost there and it flares back up.

You see the memes about the fact that the war is off during market hours and back on during non-market hours.

So I think we need to get some finality to it and then I think we'll see some decline in pricing at the pump.

Well, a lot to keep our eyes on, Michael.

So thank you so much for joining us and weighing in this morning.

Thanks for having us.

Thank you.