Host: While tech multiples have compressed this year, AI-driven earnings have not, showing tech earnings have grown around 3.8% more than non-tech earnings when it comes to market breadth. Stocks are heavily concentrated in tech, which makes up over half of the S&P 500. And with concentration likely to persist or increase, investors may have to learn to accept. At the same time, markets may not be broadening either. What could appear as broadening could actually be data-centered demand spilling over to auxiliary equipment, construction rentals and corporate loans. Well, joining us live this morning here at the New York Stock Exchange is Jed Ellerbrook, portfolio manager for the Argent Large Cap and Dividends Select Strategy for Argent Capital. Well, great to have you here. Thank you so much for joining me.
Jed Ellerbrook: Great to be with you.
Host: Well, here we are on this Tuesday morning. The Nasdaq, S&P 500 hitting new record highs. And when we look at the concentration, it is largely tech. So where do you think we go from here? And do you think this criticism that we're hearing about extreme market concentration is misguided?
Jed Ellerbrook: Yes, I think extreme market concentration is an increasingly applicable fact of life for investors whether you're investing in the United States or even globally. Tech tends to be winner-take-most or winner-take-all industries. We see that with Google and Search, with Microsoft and Office Productivity Tools, etc. We see that with Nvidia and semiconductor chips, of course. So tech becoming a greater chunk of the S&P 500 just naturally lends itself to increasing concentration in the few dominant companies. Nvidia today is nearly a 9% weight in the S&P 500. If you look 10 years, the biggest company in the S&P 500 was only 3 or 4%, so the world is changing before our eyes. I don't think we're going back. I think market concentration is probably going to increase further over time as we see technology companies and AI diffuse into our economy and just grow faster than the rest of our broader economy. So I think that technology dominance is here to stay in US equity markets.
Host: Yes, and speaking of Nvidia, of course we have been watching the new members of the minted $1 trillion club, and we're talking about Nvidia fast approaching that $6 trillion market cap. So that is significant compared to the beginning of 2020, say for that name. But when we're talking about market concentration, is it the same for market demand? Do you think that is broadening to other areas or not?
Jed Ellerbrook: I think that we're seeing a broadening in Nvidia's client base. For example, SpaceX, which came public earlier this year. Just this year they've become a really big spender on Nvidia chips, joining, I think, the four other big buyers, including Meta, Microsoft, Google, and Amazon. So yes, there is tremendous demand for Nvidia chips. The neo cloud businesses Coreweave, Nevius, Escale, etc., those are increasingly large buyers of Nvidia chips. So yes, I think that Nvidia is benefiting really significantly from the diffusion of AI throughout our economy and the massive data center infrastructure capital spending cycle that we have going, and I don't think it's, I don't think it's near a conclusion. I don't think it's not fair to say that we're at the beginning stages, nor are we at the end stages. I think, and that business continues to do well. The valuation is reasonable. And we think the company, their biggest customers are going to report earnings here in the next couple of weeks. They're going to be very, very strong.
Host: So I do want to get your take on notable valuation disconnects here, especially because we're talking about tech, because if we look at the previous quarter of 2026, we coined new terms such as SAS apocalypse and Mag 7 was lag 7, but here we are heading into the final quarter. So tell us where you're seeing these disconnects.
Jed Ellerbrook: One that sticks out to me is Microsoft. Microsoft is the dominant software provider for most businesses around the United States and in fact the world. They're dominant in so many products. My firm, Argent Capital, we use probably a dozen Microsoft products in the of my average day, that's not going to change. What Microsoft is doing is allowing me to layer AI productivity tools and use cases on top of the existing software I'm using. I think that's going to continue. That company has outstanding growth prospects. They're growing their earnings about 2020% a year, yet they trade at a slightly lower valuation than, for example, Coca-Cola. Coca-Cola is a great company, but it's not growing 20% a year. And so I think that that illustrates the skepticism that investors have related to the pace of AI being deployed in our economy and adopted by consumers and businesses and all of the capital spending on data centers that's required to make that AI use possible. And Microsoft is investing really aggressively to build data centers and offer products to their consumers and investors over the last few months have been, I would say, more skeptical than optimistic about that. But I feel like it's kind of changing before our eyes too because over the last month we've seen a massive outperformance by those technology companies and a rebound in Microsoft stock. They reported a really outstanding quarter 2.5 months ago and I think we're going to see even better quarter here in 20 days or so.
Host: And as you mentioned, we are all looking forward to the guidance coming out from some of these companies, especially as we head into the official start of earnings season for Q3. But what is your outlook moving forward for non-tech stocks in this current environment?
Jed Ellerbrook: We think that there's growth in many sectors. Obviously AI is the one that gets the most attention. One that gets less attention, I think, is aerospace and defense. Transdme is a company that we like and have invested in. It's a good sized position in the ETF I manage, which is ticker. Transdym is a company that sells replacement parts for aircraft and so when an airplane has a seatbelt break or the latch on a door break, oftentimes they're buying a replacement product from Transdym and Transdym is the sole supplier of many of these products, so that gives them pricing power. And the ability to participate in the growth of the aviation economy. Demand for flying remains high even though fuel prices are high, and we think Transdyne will continue to grow. They generally take their profits and either pay out special dividends to investors or acquire new companies, and we expect them to do both over the next couple of years. That stock, I think, has been left behind a little bit in this market, focused so much on technology as it is. And I think Transdiamond is a particularly good stock to buy today.
Host: And because you mentioned aerospace as well as defense, this might be an area that viewers are not as familiar with. So when you're looking beyond a year, say 5 years or a decade, where are the opportunities as well as risks and where does regulation and national security come into the equation?
Jed Ellerbrook: Yes, the aircraft economy is growing steadily. Emerging market customers are oftentimes gaining the ability to fly more frequently than they have in the past. We're seeing faster growth in Asia. And then the United States airline companies are really doing well and more profitable than they've been in the past, which allows them to invest in more airplanes and additional growth. So I think the outlook for air travel is strong overall. Additionally, I think it's just a really well managed company that is likely to make other acquisitions going forward and also pay out capital to shareholders.
Host: And finally, Jed, before I let you go, of course one area that all of us are paying attention to are Treasury yields as well as the interest rate outlook, not just here in the US but also globally just given where we are in terms of inflation. So what does this rate environment tell you and what should investors keep in mind?
Jed Ellerbrook: Yeah, I think over the last month I mentioned earlier we've seen technology stocks lead the market and we've seen most other stocks struggle and I think interest rates are a big explainer for that. Interest rates rising as much as they have recently is kind of dragging down, I think, sentiment for industrial companies, also financials, even consumer businesses and, like I said, technology and also healthcare have been leading the market. So yes, the market is responding in real time to the big rise in interest rates. We're seeing a significant negative impact on the housing market, for instance, mortgage rates exceed 7% today. That's having a major impact on new construction. I think it's also going to impact auto sales, which are oftentimes financed. Just last night, Camping World, which is a small cab company that supplies RVs, sells RVs from retail stores, they cut their guidance. That business is really struggling from the double punch of higher interest rates on financing and also higher gas prices to fill up and operate those RVs, so you know it's having a real negative impact on the economy.
Host: Well, a lot of moving parts here, so I appreciate you breaking it all down for us from a fundamental perspective as well as technical perspective. Thank you so much for joining us today.
Jed Ellerbrook: Thank you.
