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Baird tech strategist Ted Mortonson comes on Market Domination Overtime to discuss his forecasts on hyperscaler capex spending, as well as the industries expected to become most prominent in the tech trade’s latest phase.
if you point out the hyper scalars, they’re going to spend about 800 billion this year. Could be as much you say as 1.1 trillion, that’s with a T in 2027. How confident are you, Ted, there’s your numbers. How confident are you? You know what, yes, they’re going to show a healthy material ROI on all that historic spending. What do you think?
We’re so early in the cycle, uh and I think the key thing to realize is that uh demand is outstripping supply and compute. We are just on the, um, really leading edge of a agentic adoption, uh especially in the enterprise. It’s not even happened yet.
So we’ve got a tremendous amount of infrastructure to build out.
Let’s talk software too. Nice move off the lows. Do you look at that tendency, okay, that’s just we’re rotating out of a really beaten down sector or no fundamentals are actually improving?
I think you have to look at where we came from. Uh, when you look at the the SOXX up 90 to 100%, the IGV was down 30%.
So that Delta was close to 100% delta on performance. We’ve normalized that coming down where the the semiconductor index is up around 61%.
And the IGV or the software index is kind of flattish. Now, there’s been a fair amount of short covering, you know, with the deleveraging of hedge funds, anything that they’ve been short is is up. Um, but I think there’s an institutional look at looking at system of record names.
Now there was a moment in time where AI was really spooking folks. You know, we’re all going to I I don’t know, we’re going to vibe code our own patches. I guess was the idea. What do you think?
Well, the the whole security industry changed after Mythos was introduced. You had number one, you had a tremendous amount of these models going after and actually looking for where they could actually proliferate whether it be a Cisco router or anything in software. And that changed the rules of the game. Um, as it relates to foundational AI-based security.
After Mythos was announced, all these names ran very aggressively, whether it be uh Cloud Flare, Crowdstrike, Palo Alto, because there’s a additional uh total addressable market that was coming up and it’s a very large um, uh pivot to um security based upon what AI is.
The issue though, these have all run, they’re trading at almost 30 times EV revs.
So a lot of good news priced in.
Yes. And the other thing is there’s been some insider selling in the group on the peripheral which people are watching.
And then the the big thing is, you know, when you have a, you know, a a change in the security architectures, it shows up quickly in pipeline, not ARR and um it’s really, I don’t think the street really knows how quickly that pipeline’s going to convert to ARR, actual orders.
