00:00 josh
It’s always good to see you, my friend. So let’s dig into this. IGV Software ETF. We are in the red again today. It’s already down about 20% this year. You pulled the charts, Brent. So you basically went back and forth with that ETF. It’s really back to the lows of last April. I know there are widespread concerns about AI disruption, but maybe that’s where it actually starts, Brent. Let’s think about it specifically. What are the main concerns for software investors? What would you do? How would you bullet it? How would you frame it?
00:37 brent
Hi Josh. The framework for a complete unraveling of software is one in which Anthropic and OpenAI’s AI agents will eat away at, or essentially devour, the entire industry. That’s number one. The second is a shift in capital investment. We see capex figures for the likes of Amazon and Google, which are basically the size of Oman’s GDP (per company, per company). And big capital investments are bad for software, right? Because why? Well, in the previous segment, you showed how well they performed in the semis with Micron and SanDisk, and you saw the money flow. It’s like the beginning of a gold rush. Are you planning to go to Telluride and open a gold shop or buy picks and shovels? You are not setting up a gold store. I’m buying a pickaxe and a shovel. You’re buying everything to get gold. So what’s going on is semiconductors, energy, uh, Microsoft says this on their earnings call, it’s not a chip shortage, it’s basically a shelf shortage. There are not enough buildings to house these data centers. Are you going to buy software for your data center now, or are you going to buy those assets? So CapEx leverage is going to take money out of our group. In general, the last point will be about money flowing out of technology. So some of the names are obviously leaking to SanDisk and other names, but the majority are leaking. Look at Walmart, Gold, Colgate Palmov. All of these stocks are the year-to-date returns your portfolio has earned. I would love to make double-digit profits. By the beginning of February, we had a 15% return across the three assets you know in that one year alone. So, you can’t underestimate or overestimate, uh, this point is that there’s a leak of names that don’t show any intonation. Software is not yet reflected in AI. And it will happen someday. That hasn’t happened yet. It will happen. And that probably won’t happen until June 2020, late 26-27. But when an inflection point is seen, investors chase the bright light of the inflection point. There is no intonation in the software at this time. It’s stable, it’s stable. It’s not collapsing, but fears of AI taking over the industry are understandably causing portfolio managers to run out of space and pursue other names. So this is a reallocation of the portfolio and money is going elsewhere. We see it on our desks and in the flow of funds at Jefferies. That’s what’s happening. Um, and I think there’s other, there’s a lot of other factors that are going on right now, um, we can talk about that, but those are the big factors.
04:54 josh
So,
