Melissa Otto, head of Visible Alpha Research at S&P Global Market Intelligence, joins J.D. Durkin at the New York Stock Exchange to discuss Dow 50,000, mega-cap tech earnings volatility, and the surge in AI-driven capital spending.
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J.D.: Let's bring in our good friend, Melissa Otto. Head of Visible Alpha Research at S&P Global Market Intelligence for her take on everything. Take one step this way with me, if you don't mind. Okay, so here we are at Dow 50,000. We're so close to all time highs for the S&P 500. But what a wild last 72 hours it's been. And quite the recovery today. What did you say.
Melissa: First of all thanks for having me here for the New York Stock Exchange especially on such an incredibly exciting day. Dow 50,000. Amazing. I mean, what a wild week. I mean, earlier in the week, we thought, oh my God, this is Armageddon. And now here we are at all time highs. The volatility is unprecedented. Yeah.
J.D.: Absolutely. Yes. Talk to me about what you've seen about some of the mega-cap tech earnings. We've now got most of the Magnificent Seven behind us. But Amazon kind of getting rocked in the day. Even though they said hey we're going to double our CapEx spend on the AI build out one year to the next. What happened with Amazon?
Melissa: I mean, they came in with a CapEx number that was 30% higher than visible alpha consensus, already high $200 billion is what they announce. This is an incredible number. Then you also had Alphabet. Similar situation. Their number was actually 50% higher than visible outfit consensus. So you've got this massive amount of capital coming into the market for data centers, for compute - all of this to support AI.
J.D. And that's not alone. How about Microsoft and some of the other names? We had a few names report last week and they're all important. These are the most consolidated and most important names in the S&P 500.
Melissa: I mean, when we aggregate all of them together this year alone, we're going to see over $630 billion in CapEx.Unbelievable.
J.D.:Absolutely. How does this set the stage for Nvidia. Jensen Huang and co, they tend to now report at the very tail end of the earnings season. They kind of let the other mega-caps go first. And then it's all eyes on Nvidia. Will you be looking for a few weeks from now?
Melissa: I mean we've already started to see estimates for Blackwell and for the data center revenues speaking up into the quarter and also for next year. So I would say there's optimism building into building into estimates and where consensus is headed.
J.D.:Yeah, it's amazing to me how quickly the narrative shifts, because this time one week ago, we were talking about the fact that so many parts of the financial markets kind of got throttled after the announcement of Kevin Warsh. That seems like a distant memory right now because of how much we've been through in the last seven days. are some other additional catalysts, Melissa, you'll be paying attention to in the days and weeks ahead?
Melissa: Oh my goodness. Memory stocks. Oh yeah. We have seen upward revisions just flying on these names. I mean the amount of DRAM and high bandwidth memory, the demand for it is astonishing. And the prices of this have just absolutely increased in the past 2 or 3 months. And you've seen the stock prices doing the same. It'll be interesting to see how valuations start to reflect this difference. Multiples are only trading at 9-10 times. We look out to 2027. So curious to see what the top is there.
J.D.: Are you talking you're talking names like SanDisk, Lam, Western Digital. I mean, that has been an astounding run for any investor who hasn't paid attention to those.
Melissa: Unbelievable. Yes.
J.D.: That's amazing. Before we let you go, anything else big you're paying attention to here for the rest of the month of February?
Melissa: I mean, we're just keeping our eyes out on the whole macro geopolitical picture. I mean, even though the US, we're seeing this big rally today, it's again Dow 50,000. But, you know, one of the things that's been very interesting is overseas markets. Emerging markets up almost 50% in the past couple of months. Developed markets also trending very, very well outperforming the US. So is that trend going to continue. And also what's going to be the trajectory of the dollar given all of this new Fed news. Yeah. Are we going to continue to see strength or could we see a weaker dollar.
J.D.: Yeah we saw a lot of strength as everything else was selling off this week. On a day like today obviously we reversed the tape. The Dixie falling about 22 basis points on the day. Selling it at 9749. Our good friend Melissa Otto, head of Visible Alpha research at S&P Global Market Intelligence. Happy Dow 50,000. Happy Friday.
Melissa: Happy Friday.