Remy Blaire: U.S. stocks are surging as the Democratic Party takes back control of the House and the Senate. The Dow is rallying over 1,500 points on this Wednesday, while the Nasdaq and S&P 500 also soared triple digits. Well, following the election results, questions are emerging about a key ballot issue, and that is the AI data center buildout. And this does come as incumbent Greg Abbott loses to Hinojosa in Texas.
Now, investors are dealing with a major earnings reality check as well. Beating estimates is no longer enough. The market has stopped rewarding Big Tech’s AI spending ambition, demanding proof of free cash flow instead, with the Mag Seven trailing the rest of the market in earnings growth for the first time since 2022. And stock selection has never been more critical. At the same time, AMD and Super Micro are looking to change that narrative following their massive revenue beats yesterday.
Joining us live here at the New York Stock Exchange is Paisley Nardi, head of investment strategy at Tema ETFs. Paisley, good afternoon. Thank you so much for joining me.
Paisley Nardi: Yeah, happy to be here. Lots going on.
Remy Blaire: Oh, absolutely. We’re paying attention to what happened with the midterm election results, but a lot of movement across all asset classes on this Wednesday. So when it comes to the AI trade, what’s changed?
Paisley Nardi: So you’re right, a lot of information coming out in the last 24 hours. But I think what’s encouraging, and the markets are reflecting that today, is that we shouldn’t be too surprised. I think we were predicting a Democratic sweep, which is what we got. And a lot of the pressure right now, a lot of the rhetoric, is around the AI data center build-out, and what that actually means in practice.
We saw a bit of a rally in those stocks yesterday and then a bit of an offset or a sell-off today, as the market really comes to terms with what this means. I would maybe share a couple of facts that I think are helpful. Some of the moratorium discussions that we’re talking about, especially in the state of Texas, where 25% of the expected data center build-outs over the next couple of years are taking place. So all eyes on Texas. But some of those moratoriums have been in place for months. Even with Greg Abbott prior, he had put a moratorium on, and I think it [unclear: “really understands or kind of undercuts these leaders”]. Political leaders are looking to support their constituents.
And so what I do think this means, and what the stock market is reflecting today, is we’re going to have to come to terms with a slower build-out. And so I think the market’s doing a little bit of an overreaction today. Broadly speaking, I do think there is a lot of push around, not so much taking the data center build-out completely off the table, but making sure that the companies that are building the data centers are footing the bill rather than the local taxpayers. And so I think over the next couple of weeks, the market will come to digest a lot of the facts versus just the opinions or the beliefs today, which is what we’re seeing in the stock price.
Remy Blaire: Yeah. Paisley, you brought up a lot of key points there, especially as we’re looking at markets on this Wednesday afternoon, not just across equities but also across sectors. And as you mentioned, when it comes to the AI trade, it is the entire ecosystem, whether we’re talking about the energy part or the data center build-out. But when we take a look at the Mag Seven versus the rest of the S&P 500, the 493, tell us what’s happening below the surface and what your expectations are.
Paisley Nardi: So something really fascinating, I think, that has gone on under the radar in the last couple of weeks is, from an earnings perspective, we’ve been so focused on the Mag Seven and the AI trade and technology trade broadly pushing higher because of strong fundamentals. That is true and continues to be true, but at the top level, when we look at the baton being handed from the Mag Seven to the 493, what we’re actually seeing is an acceleration in the earnings, the fundamentals that are driving the other 493 stocks, and maybe starting to see a deceleration in some of the Mag Seven stocks.
And so as an investor, you start to say, this rotation trade that we’ve seen in the last couple of weeks, away from tech and AI into some of the broader parts of the economy, is maybe not just a defensive risk-off bid in those sectors, but actually driven by some strong fundamentals. And so as we look out over the next couple of weeks, within the fourth quarter, I think that might be a really interesting opportunity for the broader market to be lifted higher, led by some of the non-AI trade as well.
Remy Blaire: And before we move away from the AI trade, I do want to get your take on Anthropic, especially on the heels of that S-1. As we look ahead to the rest of November, give us your take on where you stand with Anthropic and what all of this means as we move forward.
Paisley Nardi: Yeah. So at Tema, we are very excited about the upcoming IPO for Anthropic. Anthropic is one of our largest holdings within our [unclear: “laser”] ETF, which is a photonics and optical strategy. Specific to Anthropic, though, why we’re excited, or why we’re bullish on the stock going public, is the latest S-1 filing showed some encouraging fundamentals. Obviously, the latest was showing maybe a deceleration in profits. We’re expecting that to be a bumpy road. This is a young, new company. It’s actually the fastest-growing company in history to reach 40 billion in profits. So I think that’s really, really important.
Diversity of customer base is another really encouraging signal that we got from the latest S-1. A year ago, Anthropic had a very narrow set of customers, and now we’ve seen that broaden out. And 80% of Anthropic customers are outside their top five. And so I think that really speaks to, again, the maturation of their business and the ability to kind of capitalize on the idea.
Remy Blaire: [unclear: “Kerry Bradley”] Yeah, a lot of anticipation as we head closer to that Thanksgiving Day holiday with the expectation of that Anthropic IPO. But finally, before I let you go, I do want to ask you about post-midterm seasonality here, especially given the fact that we are heading into year-end. And traditionally there is something known as the Santa Claus rally. So what is your outlook?
Paisley Nardi: So between the Santa Claus rally, between the broadening from an earnings and fundamental perspective, and the fact that the uncertainty of the midterms is now behind us, and there weren’t really any major surprises, despite the fact that, of course, the Democratic sweep was a little bit stronger than anticipated. And that’s why we’re seeing the market rally today. You see the volatility indexes down. Rates are down a little bit. Oil’s down. It’s going to be a huge catalyst for consumer sentiment, and the broader stock market is higher.
And so I think we’re starting to maybe see some of this inflection point, and the kind of sour sentiment that we’ve had for the last couple of weeks start to shift. And so quite bullish, I would say, heading into year-end and for the opportunity set for early 2027.
Remy Blaire: Yeah. And Paisley, you mentioned a keyword there. So for our viewers, tell us what you’re seeing when it comes to actual sentiment.
Paisley Nardi: So we’ve seen a bit of this over the last couple of years, the hard versus the soft data. We put out these surveys, not us personally, but the industry at large, and there’s been this bearish sentiment, and it makes sense. Affordability. The price of oil, the price of gasoline, the price of groceries. But for whatever reason, we continue to see the stock market move higher. And so I think, again, stock markets are forward-looking. It’s looking at what’s actually driving growth, and we still have really strong positive growth. And we still have really strong positive earnings.
And so from a stock market perspective, I think we have a lot of catalysts and a lot of tailwinds ahead. And actually, the negative sentiment from a consumer perspective can be a strong contrarian signal. So when you start to have this [unclear: “hoarding or herding”] effect, where everybody is feeling negative on the outlook, and valuations have come down, which they have, the technology sector broadly is trading at some pretty attractive valuations relative to its own history and relative to other sectors. So we actually see this as a pretty constructive buying opportunity within tech, despite the fact that it feels like every headline is picking apart the tech sector.
Remy Blaire: Yeah, a lot of moving parts here. So I appreciate all of your insights. Thank you so much for joining us today.
Paisley Nardi: Thanks for having me.
