The AI Spending Boom Faces a Reality Check (ft. John Petrides)

**Zaid** (0:00)
Welcome back to The Rundown, interview edition. Today, we are talking to John Petrides, Portfolio Manager at Tocqueville Asset Management. This is John's second time on the show, and he's joining us at a wild time for the markets with earnings season in full gear, plus some macro stuff popping back into the picture, like higher oil prices and bond yield surging. So in today's conversation, we get into it all with John, his thoughts on the CapEx boom and the tech sell-off, if the market is underpricing the geopolitical risk, and what he thinks the Fed might do with interest rates next week and into the latter half of the year. This was a fun and free-flowing conversation. I think you guys are going to love it. So let's get into it.
All right, guys, today we are joined again by John Petrides, Portfolio Manager at Tocqueville Asset Management. John, welcome back to The Rundown.

**John Petrides** (0:49)
Thanks for having me on again.

**Zaid** (0:51)
I'm so excited to talk to you today. There's so much happening in the markets right now. You're joining us at a really good time because we're starting earning season right now, but there's also this emergence of geopolitical risk and other macro factors. So I want to start there.
Earning season just kicked off. Numbers have been pretty good so far, but now we're seeing oil prices come back up, tariffs are on the headlines again. What do you make of the macro backdrop before we dive into some of the earning stuff?

**John Petrides** (1:18)
Yeah, it's a great question. And I think what you're seeing is investors have been emphasizing the AI capex spend, particularly of the MAG7, more than they have the resurgence of conflict in Iran, and really just brushing aside the fact that interest rates on the 10-year have back up above 4.6 percent. So if you remember in 2022, when the stock market sold off aggressively, everyone was pointing at the rising interest rates, and now it's being drugged off. So it's fascinating to see where the narrative is really emphasized these days.

**Zaid** (2:03)
Yeah, the bond market, the yields are rising, oil prices are rising, but the stock market, I know that tech has been suppressed a little bit, but we're two, maybe 3 percent away from all-time highs in the S&P. It's just, I'm so confused on what to make of everything right now.

**John Petrides** (2:18)
Yeah, no, you hit the nail on the head. Confusion is a good word, because if you're a trader, wow, it's been a rough past 5 or 6 weeks, because presumably, or actually probably last 3 months. I mean, look what happened within the entire tech stack, particularly semiconductors and hardware-related stocks, in April and May, right? We saw this massive step-funked higher, and you saw a sell-off of everything not nailed to the ground to buy anything hardware AI tech-related, right? And then basically, you could point a finger at, once we saw a peak of token maxing, of tokens being used, right? You saw a massive sell-off in tech, and as we know, and that was around June 12th, June 15th, you've had some headlines in there, you've had some other notable items pop up that have sort of added to the volatility.
And as we all know, we've been talking about it for a long time, the global financial market, not just the US, is really focused on tech and AI spending.

**Zaid** (3:26)
Well, let's talk about some of the tech and AI spending. The big headline this week was Google dropped their earnings report. I mean, I thought it was a blowout quarter, right? I mean, the top line, bottom line, their cloud growth up 82%, thanks a lot, a large part to all their AI investment. Yet the stock sold off big time. And I think most people are pointing to the fact that Google's cash flow came in negative last quarter for the first time ever. And then they actually increased their CapEx guidance to over $200 billion.
And I just, what I don't understand though, is that like, I would have thought that Google showing the massive growth in their cloud business would maybe, you know, give investors some calm. But even that wasn't good enough for investors. I guess nothing is going to justify all this CapEx spend. How do you make of all that?

**John Petrides** (4:16)
Yeah, you know, so we own shares of Google for our clients. I own shares of Google personally. I think Google is a fantastic company. I think you're getting to the point where it's what narrative do you want to focus on? And we are really in an arm wrestling match between momentum tech investors and value non momentum tech investors.