'SIXTH WAVE': AI is the 'opportunity of a lifetime,' CIO says

Key Concepts

• Palantir (PLTR): Focus on continued high growth in both military and commercial contracts, exceeding the “Rule of 40” benchmark.
• Artificial Intelligence (AI): Viewed as a creator of new opportunities and fields, not a dystopian threat, referred to as the “Sixth Wave.”
• Safe Haven Investments: Traditional safe havens like gold, silver, and Bitcoin are currently underperforming; focus shifting to stable, essential retailers.
• Defensive Stocks: Walmart and Costco highlighted as examples of stable, low-volatility investments with continued growth potential.
• Rule of 40: A financial metric used to assess a company’s growth and profitability; Palantir’s target is 100%+, significantly above the average of 40%.
• Beta: A measure of a stock’s volatility in relation to the overall market.

Market Overview & Palantir Expectations

The broadcast opens with a snapshot of market futures: the NASDAQ is projected to decline by 140 points, while the Dow Jones Industrial Average shows a slight increase of 17 points. The primary focus immediately shifts to Palantir Technologies (PLTR) earnings report, scheduled for release after the market close. Keith Fitz-Gerald anticipates “another stunning quarter” despite recent stock price declines, expressing less concern about the stock’s recent performance than about the specifics of the report. He specifically seeks to see continued growth of at least 60% in military contracts and over 100% growth in commercial contracts. Fitz-Gerald emphasizes Palantir’s exceptional financial health, noting the company operates under a “Rule of 40” benchmark of 100% or higher – triple the typical “good score” of 40%. The Rule of 40 is a metric combining revenue growth rate and profit margin, indicating a company’s efficiency and growth potential.

The Perspective on Artificial Intelligence

The discussion pivots to Artificial Intelligence (AI), prompted by an op-ed written by Palantir’s Chief Technology Officer published in Fox News Digital. The op-ed challenges the prevailing narrative of AI as a purely negative force. Fitz-Gerald strongly agrees with this perspective, stating, “AI is going to create new opportunities, new fields, new entire slices of life that we cannot yet comprehend.” He highlights that 65% of today’s young workforce is employed in jobs that didn’t exist previously, illustrating the dynamic nature of the job market and the potential for AI to generate new employment sectors. This period of technological advancement is referred to as the “Sixth Wave,” signifying a major shift in economic and societal structures.

Re-evaluating Safe Haven Investments

The conversation then addresses the recent downturn in traditional safe haven assets. Gold and silver have experienced significant declines over the weekend, and Bitcoin has been falling for the past two to three months. Stuart asks where investors should turn for safety in this environment. Fitz-Gerald counters the conventional wisdom, stating that investors are overlooking opportunities in unexpected places. He uses Walmart as an example, noting its beta of .67, meaning it’s approximately 33% less volatile than the broader market. Despite its lower volatility, Walmart demonstrates strong growth, driven by a new CEO, investments in AI, and a consistent customer base of over 300 million shoppers weekly.

Retail Sector Analysis: Contrasting Approaches

Fitz-Gerald provides a comparative analysis of retail companies. He expresses a negative outlook on Target, stating, “They are not even remotely close on the data scale. I don’t think they know what they are doing and they have lost their way.” He draws a stark comparison to Sears, implying Target is following a similar trajectory of decline. In contrast, he advocates for Costco, citing similar reasons to Walmart: stability, essential goods, and consistent consumer spending regardless of broader economic conditions. The emphasis is on identifying companies that provide essential goods and services, ensuring continued revenue streams even during periods of economic “deleveraging” (reducing debt and risk).

Treasury Bonds vs. Growth Stocks

Stuart questions the viability of investing in a 10-year Treasury bond yielding 4.25%. Fitz-Gerald argues against this approach, suggesting it would lead to missed opportunities. He contends that focusing solely on safe, low-yield investments could result in missing out on significant gains from companies like Palantir, Walmart, and even Microsoft’s potential future growth. He frames this as a trade-off between guaranteed, albeit modest, returns and the potential for higher, but riskier, gains. He concludes by stating that missing out on these growth opportunities "would be bad," effectively capturing Stuart’s attention and reinforcing his argument.

Conclusion

The core takeaway is a shift in investment strategy away from traditional safe havens towards stable, essential retailers demonstrating growth potential. The discussion highlights the importance of understanding a company’s financial metrics (like the Rule of 40 and beta) and recognizing the transformative potential of AI. The overall message is one of cautious optimism, advocating for a proactive investment approach that balances risk and reward, rather than solely prioritizing safety in a volatile market.