The story Monday was about some of the mega-cap tech names, some of those that have fueled the gains in the first half of the year. Some of those names you were particularly concerned about. So you sat on the sidelines away from them. How do you react to the last 24 hours then? Well, it's interesting that with that sector, it wasn't really a Monday story per se. It had started July 10th. The Nasdaq drawdown had reached 13 and a half percent yesterday. So there was already quite a bit of slide going on. And I think that does stem from the overvaluation. It's pretty stunning when you see a name like in video that had been down 25 to 30% and was still trading at about 59 times earnings, 30 times sales after such a violent correction. I think even today when you look at Apple still being negative with this kind of bounce back rally today.

It does feel to me like a rotation of
leadership is very well underway. You raise a point that we reiterated in
yesterday's show, that Friday marked four straight weekly declines on the Nasdaq
100. Right.
You were already in correction territory.
I guess the question for someone like you, David, is what do you do now?
You know, it's the drawdown or so-called technical correction enough
that you start to look at some of the names that for many they are tinos or
they are there is no alternative to holding them.
Well, there are probably investor categories that might want to look at
something they are not. They certainly shouldn't be doing it
because they believe it's reached a value.
These are still extremely expensive stocks for us as dividend growth
investors. The tiny little paltry dividend that the
invidious measures in Apple's pay is not enough to whet our beak.
And so they would have a long way to go.

to start returning cash to shareholders for us to be attracted. But even apart from our dividend growth orientation, the valuations are still very high. I began professionally managing money in the 1990s, and so I will be forever scarred by the reality of what happens when you overpay for very good companies, very big and successful companies that have a generational success, and yet their stock goes nowhere for ten, 15, 20 years in Cisco's case, still hasn't got back to 1999 levels. Those stories are real and I believe very much they will be the case with some of these names, too. I think investors have to be careful. I find names like Cisco, maybe even Adele interesting as sort of appendages to the infrastructure build out this happening. I wrote about it in today's Tech Daily. Right. If you think about the growth concern, investment or capital expenditures into datacenter seem to be plowing ahead.

regardless of short-term jitters.
Is there an opportunity for you in that space, David?
Or do you think it's just overdone already at this point?
Well, that's a very interesting story because there you can get cash flow.
And so, for example, Blackstone has become one of the largest investors
institutionally in the data center story.
And we're able to get a real yield and become a landlord, so to speak, to data
center, become a little bit less concerned with the with the underlying
business fundamentals as to how much Microsoft's going to buy from an VEDERE
or what the monetization of AI is going to be.
A lot of those questions are not answered.
They're not going to get answered anytime soon.
But data center becomes a story that from a brick-and-mortar standpoint, you
can make money in. I find that so interesting.
Never before did I think I'd be writing

about rates in my technology newsletter,
and I use their forecasts or data to kind of look at the market pipeline as a
whole earnings. You know, this morning we wake up
Palantir's strength, Uber's strength. And last week we learned from Microsoft
in particular that if you miss estimates, you're in trouble.
But there's still a long way to run in this earnings period.
Have you taken a sort of lesson on the whole from those that have already
reported? Yeah, well, about 75% of the way
through. It does appear that overall earnings
growth is not going to be 8% as targeted on the quarter, but probably closer to
5% year over year. Earnings growth still expected to be
about 12%. But some base effects are going to make
that a lot harder in the next quarters. And so I think the story of Microsoft is
kind of a microcosm of the underlying reality that there's this sort of
feedback loop at play that Microsoft

goes up because it's buying a lot from
in video, and in video goes up because Microsoft's buying a lot from it.
And of course, there's a lot of other customers.
But this idea that I doesn't ever have to tell you how it's going to make money
for real other than an infrastructure backbone story is problematic.
And if those revenues are going to be going down before they've converted to
profits, then you have an unwind that has to take place of a feedback loop.
David, for the technology sector, then what happens in the second half of this
year? I would be somewhat unconstructive in
the space on a valuation basis, but we are hardly the types of technology
investors that you normally would be speaking to, just in the sense of our
boring insistence on free cash flow. You know, we own Broadcom in the
portfolio. We don't believe it got to the valuation
overstretch that India has.

And then we own old tech names like IBM
and Cisco that have ongoing free cash flow from online businesses, but
obviously new growth opportunities. That's the way we would prefer to play
it, just simply because we think perfection was priced in to the more
contemporary technology names.

Big Tech Traders Are Not Buying the Dip

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