Schultze: Brace for “Mixed” 4Q, AI Memory Trade Hit “Peak” with MU Earnings

We're back on Morning movers. I'm Diane King Hall live from the floor of the New York Stock Exchange. As futures tick higher, investors look for a fresh start at the beginning of a new month. We want to welcome in George Shultz, the founder and CEO of Shultz Asset Management. Joining us here this morning live. George good to see you this morning. So the the direction today doesn't tell the tale of the tape September. September was choppy and volatile. It's kind of many exn you look historically speaking. We finished with the for the month. The S&P 500 also finished lower. The Nasdaq was t tell you about the state of the market and what's happeningder . Very narrow breadth. I mean iful the Russell 2000 down about 7% for the mon I think the big story though is what's happening in fixed income. there with rising Treasury yields really a long bear market so far for the fixed income market.he sixth year of a bear market, according to the US Bloomberg Aggregate Bond Index, which peaked in August of 2020 and hasn't recovered since then. So much higher interest rates.one of the big things leaning on stocks and making it difficult for most stocks to climb, even though you're seeing some, you g seven and the, you know, technology companies rapid growth in AI. So kind of a mixed bag for the stock market winners and losers. You know, we have persistent inflation. We have big secular change which is benefiting some of these companies, but also hurting the companies that don't have it or don't have the ability to compete against it because constrained balance sheets. So really an interesting dynamic with, with again, winners and losers and lots of market catalysts as well. I know sometimes when we talk about consumeften have this conversation about the haves and the have nots and the k-shaped e. It feels like it's starting to we're seeing that tension in the market because I also would have expected overall for yields sitting where they are now to cause more damage than it has within the market. We have the ten year sitting closer to five three than not. Right now, why hasn't it caused more damage? Well, it depends on where you look. Yeah. For the for many of the largest companies that that are AI focused like the mag seven know, they're not overlevered companies and they're doing very well. They're growing. And so as a result, equity investors keep throwing new cash at those companies. And they've done quite well. They're reporting good earnings. You saw that yesterday witMicroI think overall you know for those companies that have fine balance sheets or clean balance sheets, it's not that big of a change, you know. But for companies that are over levered, the ones that have t four, five, six times leverage through, you know, their debt, that's a problem. And because of that, you know, now they're facing risks of higher rates when they refinance that debt or difficulty repaying it when it becomes due. And frankly, you know, risk of default as well. So it's really, that's, that's the story, the haves versus the have nots. Those, those companies with bad balance sheets, you know, are suffering from higher interest rates and a tightening credit market.e also seeing it in private credit. You're starting to see rising defaults. , inflation is impacting virtually every business plan. And inflation is persistent,rsis struggling with raising interest rates because it doesn't want to crush the economy and the markets. But at the same time, inflation has been going and been persistent for years. It's the same level it was last year. So it's difficult inflation without raising interest rates. know, behind the inflation you're seeing higher oil prices because of theconflit and the and the disruption to the Strait of Hormuz. And then, you know, as I said before, the final thing is, is disruption, you know, industries being disrupted by new technology and AI. And so again, that's creating winners and losers. And it depends on which you loos of what the impact is. Speaking of winners, let's talk about micron specifically. I know you have more thoughts there. They delivered a blowo quarter. When we're talking about revenue record more than 54.2 billion here. Their core data center r more than 11 times year ago levels. What's your takeverall on its results? And you know, the story that micron tells. It's an exciting time. It's an exciting time with AI and these e reporting higher revenue quarter over quarter and year over year is dramatic growth. You know, the real question, though, is how much of that revenue has to be plowed back into buying, you know, new infrastructure and new and spending new capital expenditure dollars. Fortunatel micron, you know, it didn't use up all of its cash flow for CapEx. B of t, you know, you're seeing that trend where, you know, the amount they're investing is exceeding their current operating cash flow. So, so, soa good quarter. And I think the this morning about a premarket. The bigger question though is if somethingns overall in this sector, if growth starts to slow down or companies start to pull back on their CapEx expenditures for some reason or an you know, that's when I think you'll see a big correction with some of these bigames. And then George for micron do you think it's cyclical business anymore. Do you think it will have those kind of typical boom bust cycles. Or is it you know is there a structural shift that you seeappening? There's definitely been a big change with with AI spending and, you you know, electronics for, you know, that market, which is booming big time. But, but yes, this is a cyclical sector. I think rig we're probably at the peak of it. And, you know, we'll see how things in a couple of quarters or a couple of years when when, you know, there's bee excess supply produced and demand starts to taper off. You know, that'sypically happens with cyclical companies and cyclical sectors. You know, when yhe correction, it can get really ugly. Okay. All right. We will on the watch out for that. Thank you George. That's George Shultz. He's the founder andEO of