Boring but sexy (stocks)

Katie Martin (0:09)

I sense a disturbance in the force. It's hard to know when you're in the middle of markets shifting from one mode to the next, but it really feels like that might be happening now. The reason, of course, is Nvidia. The chip maker put out some decent results last week. In fact, to be honest, it put out some pretty extraordinary results last week, but investors are just not lapping it up like they used to. The stock is already up by 11t bazillion percent this year, and it's kind of stalled. So today on the show, we're asking, are boring stocks sexy now? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, and I'm joined by that guy in New York who writes about men's fashion in the FT sometimes, Rob Armstrong, who is also head honcho of the Unhedged newsletter. Rob, how do you feel about boring? Is boring good?

Rob Armstrong (1:06)

I am the living embodiment of how sexy boring can be, Katie. The only reason I was able to get married at all.

Katie Martin (1:15)

Yeah.

Rob Armstrong (1:16)

I really think you put your finger on it. The problem markets are facing now. Yeah, you nailed it in the intro. Let's quit now.

Katie Martin (1:24)

So let's just very quickly talk about how good the news was from NVIDIA. NVIDIA, for anyone who is lucky enough not to have paid attention to this, is this like this? This incredible success story of a chip maker that's become like this gigantic company, not exactly overnight.

Rob Armstrong (1:39)

Biggest company there ever was in dollar terms.

Katie Martin (1:41)

It's just extraordinary. And so last week it put out some earnings numbers and is very much riding the artificial intelligence wave. And it said that its revenues have more than doubled to $30 billion. Like that is a chunk of change. And it says in the next quarter, we're going to make $32.5 billion and the market's like, well, it could have been more, couldn't it?

Rob Armstrong (2:09)

Yeah, well, we were hoping for better from you. We were looking for improvement.

Katie Martin (2:13)

We're a little disappointed. I mean, what do they want? Blood? This is ridiculous.

Rob Armstrong (2:18)

Must apply self, says the report card.

Katie Martin (2:21)

Let's try harder.

Rob Armstrong (2:22)

Good news is not good enough, Katie. We need we need unbelievably good news, not just for NVIDIA, but for stocks like Microsoft as well. Yeah. Other AI names, Google maybe too.

Katie Martin (2:37)

Yeah.

Rob Armstrong (2:37)

There's been so much good news. That's been priced into the stocks. And now we need unbelievable news to make these stocks move, which raises a tricky question, which is what makes the market go up?

Katie Martin (2:50)

Yeah.

Rob Armstrong (2:51)

If not these guys, let us think back to miserable March of 2020 We all thought COVID was going to end the world. Since then, the market has doubled. And about half of the gains in the market, in terms of value, in terms of dollars, have come from the magnificent seven stocks, the big tech stocks. Thirteen percent of the games came from NVIDIA alone.

Katie Martin (3:13)

Craziness.

Rob Armstrong (3:14)

NVIDIA has added $3 trillion in value over that period. So who's next is the question. Next person up, who is that next person? And it's a tough question because we're so used to this tech theme, this AI theme, where are we going next?

Katie Martin (3:30)

So this feels a little bit to me like the law of large numbers, right? It can't just keep doubling, tripling forever at some point, unless this is going to become like a $10 trillion company by the end of the year, then something has to give, right? But are you convinced that this is kind of it for the tech leadership in markets? Would you think this is just a bit of a sort of summary head fake?

Rob Armstrong (3:54)

These stocks were actually on standard metrics of valuation. These stocks a year or two ago weren't terribly expensive because their earnings were so strong and their earnings were growing so quickly that the valuations looked like kind of like normal stocks. That is not true anymore. Now, they're just plain expensive stocks. NVIDIA is trading at over 30 times earnings and it's like, yeah, we need, you know, they have priced in a very, very big future. So, it's important to emphasize, we're not talking about AI coming to an end or tech becoming less important or whatever. We're talking about what's in the price. And the answer right now is a lot.