Tiernan Ray on AI Regulation, Cybersecurity Rally & Software Stocks to Watch

Marlee (0:00)

It's time to spotlight the latest in the tech sector. Joining us now, Tiernan Ray, the CEO and publisher of the Technology Letter. Tiernan, great to talk to you as always. Now, let's talk about the big picture here. We've got growing concerns over AI, a call for pacing or a slowdown.

How much does this conversation or this narrative actually change the investment outlook for AI overall?

Tiernan Ray (0:29)

Marlee, it's great to be with you again. Thank you for having me. I don't think that the recent, meaning the past weeks, concern about AI safety changes the outlook at all. Basically, because I don't expect there'll be much in the way of regulation anytime soon. There isn't the will in the White House or the inclination, or in Congress in the US right now to regulate companies such as OpenAI and Anthropic and SpaceX's Grok and Google's Gemini. So, I don't expect any real action coming from this recent bout of concern. And I expect the chip makers such as NVIDIA and Broadcom and related software makers are going to do just fine.

Marlee (1:13)

And one of the biggest, I guess we'll call it push backs against this narrative for a slow down is that yes, there are seemingly legitimate fears here at home about AI, but it is a global race that we are in for AI. So, is there a way in your viewpoint where we can strike a balance that makes both sides happy, where there's some sort of more controls or regulation, whether or not that's federal or self-regulated? I know there's conversation between Anthropic and OpenAI today about perhaps testing each other's models, finding some sort of way to do that versus not slowing ourselves down so much in the broader global race.

Tiernan Ray (1:59)

I think that it's fair to ask a global question, but I also think that so much of this technology, Marlee, is shared between these big AI labs. You've got Alibaba and Baidu in China leading vendors of AI, and you've also got OpenAI, Anthropic, SpaceX is Grok here and Google Gemini. A lot of what they do comes out of the whole field of research, and a lot of that is shared technology.

The idea that suddenly one side is going to get an advantage, I think is a little bit made into too much of a big thing as far as geopolitics.

As far as companies, individual companies, it's always good for companies to have competition. One should not be trying to wall off a part of the industry and say, we're just going to make sure they don't have any competition. Probably the thing that everyone needs right now in amidst worries about AI is more disclosure. You saw Marlee a week ago, Richard Blumenthal, Democratic Senator, and Josh Hawley, Republican Senator, had these, both of them, initiatives to get more clarity, sending letters to the firms to OpenAI Anthropics saying, basically, what did you know and when did you know it? Tell us more about what's going on with what we've heard about hacking incidents, rogue agents. There just is not enough actual disclosure in the field right now. There's just a lot of hyperbole going on from all sides.

Marlee (3:30)

You mentioned the hacking and the rogue agents, so then I, of course, have to talk about cybersecurity because we've seen this huge move in cyber names as this narrative is gaining some traction here, and as parties on both sides are calling for some clarity.

We saw CrowdStrike, Palo Alto, Okta all moving higher hack. The ETF was significantly up last week. Does AI actually strengthen the longer-term demand for some of these cyber names that were severely caught up in the Sassacre?

Tiernan Ray (4:02)

Yeah, I think that the trade for the cybersecurity firms, you mentioned CrowdStrike, Okta, Palo Alto Networks, three of the biggest.

This trade should be very good for them, for the foreseeable future, Marley, because basically every CIO at a company who's being pressured to implement AI has now put cybersecurity at the top of their list of spending. So within a field of software that has been more abundant for years now, where it's been really hard to trade, the signals are very clear to investors, Palo Alto, CrowdStrike, Okta, and related names in cybersecurity. Zscaler is another one. These names should get the priority of spending, and they stand out for that kind of certitude within the entire software sector. So then you get investors, Marlee, who want to be software investors to diversify away from just chips, who will buy those software names as those are the best position within a group.

Marlee (5:01)

Tiernan, the very first time that we spoke, it was in the middle of the Sassacre, the Sasspocalypse or whatever you want to call it. And you said to me that there were four names whose earnings would indicate to us whether or not we were going to see a turning point. Two of them you stressed were Twilio and Atlassian. And I always like to give credit where credit is due. Both of those names rallied double digits. I think Atlassian was up 30 some percent, Twilio in the 20s.