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00:00 Speaker A
Where are we in the AI trade? It feels like we’re in a new phase, a more skeptical phase, although we had little bursts of that last year. But this year it feels like that’s that’s kind of settled in a little bit more.
00:23 Speaker B
Yeah, I think you’re right, Julie, and I actually think that’s good news because if there wasn’t skepticism, you really could make a case for a bubble. And so the question now becomes, you know, is software dead? Uh is is the AI uh the AI adoption going to make money? We we listen to every company earnings call, uh and names we own and some names we don’t own. So across economic sectors. And we are seeing that the ad the adoption of AI is pretty robust from companies. Uh the spending is still very low as a percentage of their total tech budget. So we think we’re still early innings, but that doesn’t mean the stocks are going to go straight up. They had a nice run last year. Uh one of the names we added last year was Google, which reports this week, as you know.
01:14 Speaker B
Um well, actually, we added it in the summer of 2024 when the valuation was moribund and, you know, that turned out to be a good decision for us in our value portfolio, believe it or not. And and you might recall it was in the Russell 1000 value index. So, um you just have to sit tight, pick your spots and then really challenge the conventional wisdom. IBM reported last week, their software business is growing at a rapid clip. Um they’re seeing increasing interest in their software business uh in terms of, you know, platform, cloud, uh orchestration. So we think there’s some opportunities in names that have gotten beaten up where you can step in if you have a three to five-year time horizon.
02:00 Speaker A
Um well, speaking of names that have gotten beaten up more recently, but which have still gone way up over the past year. Palantir, which is reporting after the close and which is a controversial stock to say the least in no small part because of its, forget about the fundamentals and what it does, because of its valuation, it’s also controversial, Nancy. Is that one that you guys own and what are you looking for from those numbers?
02:30 Speaker B
We do own it and um I think what what we’ve we’ve observed all of us investors is that if you step back and look at the company three years ago, it was sort of top secret, didn’t really know who the clients were or the and customer. Now, what you’re seeing is um a much more public defense posture and uh the US Army just uh, you know, regular um made an announcement that uh the business they’re going to center their platform on Palantier. And so I think with an increased interest in defense names, this is one that, um, you want to own it, you just don’t want it to be the largest holding in your portfolio because it is so volatile and because the valuation is so lofty. But, you know, I’ve used this example with you before. The question always becomes, you know, in a stock like Amazon that had no earnings for many years, uh, Palentier was in a similar position. Uh, when was it too late to buy Amazon? The thing’s up 175,000% since its IPO. So if you’re buying transformative technology companies, you want to use volatility uh as your friend. We were buying Palentier at $8 a share last spring after during the tariff tantrum. So you you get the volatility and that can be an opportunity if you’re a long-term investor. So we’re going to be watching for guidance. I mean, that’s really the most important thing in this earnings season is what what do these companies expect uh for 2026.
04:02 Speaker A
Nancy, I think you just the question that you just mentioned that you said we’ve, you know, that we’ve talked about before, I think is is one of the most important questions for investors who are looking at technology, which is, you know, yes, the upside can be, if not unlimited, very large if it is a transformative technology. I guess the trick is figuring out if it’s a transformative technology. So how do you do that? How do you how do you know with a fair degree of of certainty that it is that it rise to that level.
04:36 Speaker B
Well, we spend a lot of time looking at management uh and and understanding the management team. It’s it think of it as a quarterback on the football on a football team. We want the very best uh CEOs because they have the ability to pivot and and um manage expectations correctly and uh and also market the company. So if you think about an Elon Musk who’s long on hyperbole, uh maybe a little bit short on uh timing of his, you know, meeting his time horizons, but he’s still a transformative CEO who is focused on the future. We own Tesla. I don’t think you can own enough Tesla, but Palentier is another one of those names, sort of an outspoken CEO. Uh he he is the company in many people’s eyes. And so, you know, that can drive volatility as well, but be rest assured, Julie, we don’t get them all right. I mean, one of our 12 best ideas is ServiceNow and it just hasn’t feel felt uh very best idea-ish, but I do think the CEO’s outstanding. We’re we have added to it on weakness and we will continue to do so.