Remy Blaire: In midday trade, Wall Street is turning higher a few hours into a new trading week, and investors are still grappling with a global bond market rout, as well as divergence between the equal-weight S&P and mega-cap tech.
But the major stock averages are near all-time highs or eyeing those levels, and over the past month, rotation has flowed back into semis, with Nvidia trading right around all-time highs.
Meanwhile, software pure plays have slumped over the past few weeks, while cybersecurity has caught a bid.
At the same time, we've seen weakness from financial and power-generation leaders over the summer months. Vistra, down 15% from its all-time high set at the end of June, while JPMorgan Chase is down over 6% in the past month.
Well, joining us on this Monday morning is Jeffrey Small, Partner at Retirement Income Source.
Good afternoon to you, Jeff. Thank you so much for joining us.
Well, let's start out with a look at software.
Now, pure plays like ServiceNow as well as Salesforce are lower over the past month, while cybersecurity has skyrocketed on AI safety fears.
So tell us why you're bullish on software names, and tell us why AI is involved here.
Jeffrey Small: Well, I think what you're starting to see is, you know, there's a core group of software companies that are leveraging AI, where AI was the threat to software, right?
And what we're discovering is a backlog of orders coming in for companies like ServiceNow and CrowdStrike.
And so those companies are lifting up the market.
Besides, software got really beat up pretty bad, by about 35%, and it was really oversold.
And that's one of the reasons why it's rising today, because we're seeing AI complement their businesses, not usurp them or replace them.
Remy Blaire: And I do want to zoom in on CapEx.
So when we're looking at Microsoft and Oracle, they are key parts of the data-center buildout.
But with more financing concerns swirling around Oracle, what do you see that reinforces your outlook for Oracle as a company?
And are you concerned about AI leaders tapping the bond market?
Jeffrey Small: I see Oracle doing very, very well.
They've got a huge backlog as well.
And I think the key to owning businesses today are businesses in tech that have wide moats, that have the ability to generate much, much revenue from a flywheel of businesses.
And Oracle fits right into that mold.
They are very committed to AI.
And your second question was? Come back with that again.
Remy Blaire: Yes. So the second question was about concerns about AI leaders tapping the bond market.
Jeffrey Small: Sure.
I think we've seen a rotation back into the Mag Seven stocks recently, and so they're kind of reasserting their leadership.
And despite rates rising, I think the market is going to gravitate toward the hyperscalers, the Magnificent Seven, plus, you know, a few others that are mega-caps because of where we are in the valuation process and where we are, let's say, in the rate cycle, as we anticipate rates going higher.
And so those companies are starting to reassert their leadership all over again.
And the number one reason for that is because their earnings have been compressed substantially.
We've seen, you know, at least 10 turns down from a 33–34 multiple last year to 23 times today.
And so that's starting to bring the market back into the hyperscalers, in conjunction with rates being higher also pushing the market back into those stocks.
Remy Blaire: Yeah. And Jeff, we are in the final quarter of 2026, and what a volatile year it has been.
But at the same time, we are still looking at potentially double-digit gains for the major stock averages, and we are looking at record divergence between the equal-weight S&P and the mega-cap names.
So with rotation flowing back into semis, can you tell us about your AI infrastructure as well as semiconductor outlook?
And why do you feel Nvidia has more room to run after hitting new records?
Jeffrey Small: Well, Nvidia is my number one pick in the semiconductor space.
They're more like an AI utility now.
But they, you know, they own everything. Compute, they're the toll road.
But no one's giving us guidance like Nvidia.
You know, Nvidia's guidance was phenomenal. For 12 months, 70-plus percent growth would be 105% without chip constraints.
And that seems to be catching fire with the entire chip industry.
And so as long as the AI buildout continues and the spending keeps marching on, we're going to have great earnings and great demand.
And we've never seen demand like this.
This is the largest spend in the history of our economy in terms of companies reinvesting in compute.
And we don't see this trend changing for quite some time, at least going into mid-2028.
So that means we've got a good bull run here.
But right now, Nvidia is the cheapest company in semis to own with the highest guidance going forward.
And so we've got a little bit of imbalance there in terms of valuations.
But it doesn't mean companies like AMD and Broadcom and Marvell and Micron won't do incredibly well.
They're going to keep doing well because the demand for compute is so large at this time.
Remy Blaire: And Jeff, finally, before I let you go, we have about 60 seconds here.
We're counting down to earnings season, and big banks have been hit by weakness.
So break down your outlook for financials.
Jeffrey Small: Well, I think a higher-rate environment makes big banks more profitable.
And someone's got to finance this AI buildout.
And so when you look at banks like JPMorgan, you know, down 15% or off its peaks, and Bank of America down, you know, this is a time to buy them.
You want to buy the dips now for these companies because of where we are.
They're going to do very, very well financing all of the super spending that's going on.
And so these are things that you want to own as core diversification tools.
So you've got compute, you've got finance and you've got power.
And you want to own components in all three of those as we march toward this data-center compute buildout for the next couple of years.
Remy Blaire: Well, I think you mentioned a key word there, and that is diversification.
We will have to leave it there for today, Jeff.
But thank you so much for joining us, and thank you so much for all of your insights.
Jeffrey Small: Thank you.
