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We invite CNBC writer Tom Lee from Fundstrat, Dan Greenhouse from Solus, and Ed Clissold from Ned Davis Research to join the conversation. Thank you to everyone who joined. So, Tom, let's start with you. You know, the market today has all the signs of a reversal. The VIX index also rose significantly.
What do you think about the market we see today? Well , thank you for inviting me. You know, the market has seemed to overcome a wall of anxiety lately. This week, concerns about AI have increased, and I think because it's Friday, there's a concern that with oil prices rising, tensions or war could escalate over the weekend.
So it doesn't surprise me that the markets are retreating today . But I think before the audience thinks this is the start of a bigger decline...I mean the markets are at support levels. Our technical strategist Mark Newton believes we can actually go up. We will reach the bottom either today or Monday.
And I think, from a fundamental perspective, as much as we respect the idea that AI debt markets may not be as confident. You know, the fundamental history and driving forces of AI remain the same. So to me, when fundamentals hold and markets get timid, it's actually a pretty good risk- reward situation for investors.
So, Tom, would you buy everything in a row on this pullback , or are there specific sectors that you think are reaching that technical zone that makes them attractive for a rebound? I believe the situation is favorable for buying memory, semiconductors, neo-cloud technologies, as well as the technology sector and crypto in general.
I think they all rolled back to support levels at a time when people may have become very fearful about fundamentals. But, as you know, if the foundations remain strong, it's like a compressed spring. Dan, what do you think about what's happening with the Neocloud issue right now? Do you think the market is unfairly punishing him, or do you think this could be the same “red flag ” that made it such a hot topic this week?
The problem with the “ danger signal” argument, Leslie, is: how many such signals have we “killed” in the last 3 years? When everyone was clinging to every new sign of weakness as proof that the “bull” market was about to end, only to see the broader market, tech and otherwise, continue to set new highs.
So, I don't think I see anything more in what's happening now than in any other news headlines. I think the problems are this: the stakes are higher, and because everyone is already nervous about the scale of AI development and the possibility that it could go too far, everyone is starting to test the strength of some of the riskier parts of this infrastructure.
And CoreWeave and neoclouds are on the riskier end of the spectrum. And even in that context, what's happening with CoreWeave—they're not paying off the secured debt, they're not paying off the unsecured debt, and that's the riskier part of the AI building game. So I think there's a problem here: people are trying to sell something because of higher rates, but we've heard from ASML, from TSMC, we've heard from many other companies that overall demand remains pretty stable.
And I would like to hear from CoreWeave that they have some business issues before drawing any more serious conclusions from what is happening now. But Dan, demand is one thing, and capital is another. And so far we've seen capital chasing demand, and I wonder: as interest rates rise and more attention is paid to the credit situation, will these two elements bifurcate?
Yes, I give two arguments. First, the stakes are higher, that's for sure, that's obvious. And the question is, do I want to believe that everyone in the development chain is able to finance themselves indefinitely at higher rates? And the answer to that is probably no. I don't know if this is the tipping point, or if another 25 or 50 basis points increase will be the tipping point.
But as rates rise, the more speculative “ tails,” so to speak, of this development process will be called into question. And now it's CoreWeave. My argument about demand is about the broader market. For investors who don't have long positions in Nebius or CoreWeave and don't have leverage, so to speak, in the broader AI development , I don't think there's much to be learned from what's happening now in the broader context— either for the tech sector as a whole ( although it's clearly selling) or for the market as a whole.
I'm just saying: the stakes are higher, the riskier parts of the spectrum are getting hit, and now it's neocloud. Yes. Ed, what do you think? Is there a capital problem now ? And how big of a problem is this for the broader market? I mean, for many of these companies, the cost of financing is increasing .
Going public is becoming more difficult, especially for many data center-related companies that are delaying the process. Equity capital raising has also decreased significantly. We previously said that obtaining permits is the biggest obstacle to capital investment in AI development, but now it seems that the availability of capital is becoming an increasingly deterrent to this process, on which a large part of the economy depends.
And capital has its own price, and the market is now trying to determine it. It is likely that we may see some slowdown in the pace of development. Although demand still remains very high. We'll have to see what the next reporting season holds. So we'll have to wait a few weeks to get a clear answer.
And I think that's why the market is falling today: nobody knows anything. So we will have to wait until we get this data. The last few reporting seasons have really saved the day, as the numbers have been very strong and the results have exceeded expectations. Last season, expectations for earnings growth for companies in the S&P 500 index were 25%, and the actual result reached 32%.
And again, we expect earnings growth of 25–26% in the third quarter. Let's see if they can beat these predictions. So we just need to be a little patient. The market is typically weak in September. We saw this in small- cap companies. But this did not happen with large companies. So perhaps we are now seeing some kind of "catch-up" effect of what we usually see last month.
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