Andreas Steno: Mischaracterization of the capex cycle, AI investments lack fundamental backing, and technology stocks may be poised for reacceleration | Raoul Pal

Key takeaways

• The current capital expenditure cycle is being mischaracterized as overinvestment by major financial institutions.
• Current earnings cycles do not match the scale of historical events like the dot com bubble or oil crisis.
• There is a prevailing fear-driven focus on AI investments that lacks fundamental backing.
• Technology stocks may have experienced an overdone correction, with potential for reacceleration.
• The debt profile of AI companies is different from past cycles, reducing the likelihood of a credit event.
• Domestic manufacturing is gaining momentum, potentially leading to a bullish market rebound.
• The economic environment is described as a ‘textbook goldilocks setup’ with falling inflation and rising manufacturing.
• Large blue-chip companies are lagging behind smaller businesses in AI implementation.
• Many large hedge funds have yet to adopt AI technologies, indicating a lag in the finance sector.
• Concerns about an AI bubble may be premature due to early-stage implementation.
• The current market dynamics suggest potential investment opportunities in AI.
• The business cycle is showing signs of improvement, which may positively impact technology stocks.
• Inflation is decreasing, creating a favorable economic backdrop.
• The disparity in AI adoption across industries could affect competitive dynamics.
• The current investment climate may be driven more by fear than solid fundamentals.

Guest intro

Andreas Steno Larsen is the Chief Investment Officer of Steno Research. He previously served as Global Chief Strategist at Nordea Bank, Northern Europe’s largest bank. He is a Senior Editor at Real Vision and host of the Macro Trading Floor podcast.

Mischaracterization of the capex cycle

• The current capex cycle is being mischaracterized as overinvestment by major financial institutions.

  — Andreas Steno

• Major financial institutions like Bank of America have labeled the capex cycle as overinvestment.

• We’ve obviously seen pessimism around this max seven capex cycle from many of the big sell side shops.

  — Andreas Steno

• Understanding capital expenditure cycles is crucial for investment strategies.

• Divergence in analysis could impact how investors approach the market.

• The prevailing narrative in financial markets may not fully capture economic implications.

• All the big ones right they’ve labeled this capex cycle as overinvestment by now.

  — Andreas Steno

• This viewpoint highlights a critical perspective on the current financial landscape.

Comparison of current and historical earnings cycles

• The current earnings cycle does not compare to historical capex cycles like the dot com bubble.

• If you look at the earnings outlook compared to for example the dot com bubble or the oil crisis nothing compares.

  — Andreas Steno

• Historical context is important for understanding earnings during significant economic events.

• Current earnings cycles match technology sector returns in percentage terms.

• A very simple study on the msci it index gives you the conclusion that the current earnings cycle roughly matches.

  — Andreas Steno

• The discrepancy between current and historical cycles could inform investment strategies.

• In the run up to year 2000 you had a return cycle that was probably five x of the earnings cycle.

  — Andreas Steno

• This insight provides a clear comparison of earnings cycles and their market impact.

AI investments and market perceptions

• The focus on AI investments is not fundamentally backed, reflecting resistance to change.

• I kinda think that we’re stuck in an ai fear machine right now which is not really fundamentally backed.

  — Andreas Steno

• Many equity strategists and portfolio managers are resistant to change.

• Current investment climate may be driven by fear rather than fundamentals.

• I get the sense that many of these equity strategist and equity portfolio managers they’re stuck in a resistant to change mode.

  — Andreas Steno

• Understanding the role of AI in shaping market perceptions is crucial.

• This opinion critiques the prevailing investment mindset in the market.

• The fear-driven focus on AI investments could impact market dynamics.

Technology stocks and business cycle reacceleration

• The correction in technology stocks is likely overdone, with potential for reacceleration.

• You’re suggesting that this correction in both nasdaq or or some of the other technology plays is probably overdone.

  — Andreas Steno

• As the business cycle improves, technology stocks may see a resurgence.

• Earnings trends are expected to rise with the business cycle.

• We probably reaccelerate as the business cycle reaccelerates and earnings continue to rise.

  — Andreas Steno

• Understanding economic conditions is key to assessing technology stock performance.

• This forecast provides a prediction about market behavior based on cycles.

• The current economic environment may favor technology stock recovery.

Debt profile of AI companies and market stability

• The debt profile of AI companies is different from previous cycles, reducing credit event likelihood.

• The debt profile is simply different to other cycles so therefore you’re suggesting that this correction is overdone.

  — Andreas Steno

• Historical debt trends in tech cycles provide context for market stability.

• Differentiating factors in the current market could lead to potential stability.

• This explanation highlights key differences between current and past cycles.

• Understanding debt profiles is crucial for assessing market risks.

• The unique debt profile of AI companies may offer insights into financial health.

• This insight provides valuable perspective on potential market stability.

Domestic manufacturing cycle and market rebound

• The domestic manufacturing cycle is picking up speed, potentially leading to a market rebound.

• I think they’ll show that and once that becomes increasingly clear over the next two or three quarters we’ll get a rebound.

  — Andreas Steno

• Economic indicators suggest a positive impact on market performance.

• A bullish market rebound may occur if current trends continue.

• Understanding the role of manufacturing cycles is key to market predictions.

• This forecast provides a clear prediction about market behavior based on trends.

• The manufacturing cycle’s momentum could influence market dynamics.

• This insight connects economic indicators to potential market outcomes.

Economic environment as a ‘goldilocks setup’

• The current economic environment is a ‘textbook goldilocks setup’ with falling inflation.

• That is an incredibly bullish backdrop when you have inflation basically falling.

  — Andreas Steno

• Rising domestic manufacturing cycle contributes to favorable conditions.

• Understanding economic cycles and inflation metrics is crucial for market analysis.

• This explanation connects economic indicators to market conditions.

• A ‘goldilocks setup’ suggests a balanced economic environment.

• The current backdrop may provide valuable insights into market opportunities.

• This insight highlights the importance of economic indicators in market analysis.

AI adoption disparity across business sizes

• Large blue-chip companies are lagging behind smaller businesses in AI implementation.

• It still strikes me that most of the big blue chip companies remain a couple of years behind.

  — Andreas Steno

• Smaller businesses may have a competitive advantage in AI adoption.

• Understanding AI adoption across industries is crucial for market dynamics.

• This insight highlights a significant disparity in AI adoption.

• The lag in AI implementation could impact competitive dynamics in various industries.

• This claim provides valuable perspective on the current state of AI adoption.

• The disparity in AI adoption may influence industry competitiveness.

AI adoption lag in the finance sector

• Many large hedge funds are not utilizing AI technologies, indicating a lag in adoption.

• It’s shocking that you know at giant hedge funds they’re still not using it.

  — Andreas Steno

• The finance industry shows a significant gap in technology adoption.

• Understanding AI adoption in finance is crucial for assessing market opportunities.

• This insight highlights a critical gap in technology adoption within a key sector.

• The lag in AI adoption may suggest potential investment opportunities.

• This claim provides valuable perspective on the current state of AI in finance.

• The finance sector’s lag in AI adoption could impact market dynamics.

Early stage of AI implementation and bubble concerns

• The early stage of AI implementation in finance suggests bubble concerns may be premature.

• As soon as you recognize that it gets very comfortable as an investor.

  — Andreas Steno

• Concerns about an AI bubble are silenced by the realization of early-stage implementation.

• Understanding market sentiments regarding AI and investment bubbles is crucial.

• This forecast provides perspective on market dynamics and investor behavior.

• The early stage of AI implementation may offer insights into market opportunities.

• This insight highlights the importance of understanding technology adoption stages.

• The current market dynamics suggest potential for growth in AI investments.

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