Examining CapEx's Critical Role in Mag 7 Earnings

Added: 2026-05-05

[00:00:00]It's time to pre preview a very big week for Meggaap Tech and the earnings landscape. Let's welcome in our next guest. That's Joe Majinino, large cap portfolio manager uh at Madison Investments. Um I was just talking with uh my colleague Kevin in the last segment. Wednesday Thursday are as big of earnings days as I can remember, particularly Wednesday. Um as a portfolio manager, particularly in large cap, I'm sure you got exposures with to some of these names. How do you approach a day that's going to be so monumental in terms of a market cap swing, Joe?

[00:00:34]>> Yeah, from our perspective, you know, we are long-term investors. So, of course, you know, we, you know, volatility will be expected and that's just, you know, the cost of being long-term investors.

[00:00:46]And for us, you know, what we're looking for is just as you alluded to with your prior guest is I'm sure what everybody will be looking at is is the capex numbers and if those continue to be rise um continue to rise or not. And I'm sure we can get more into that if you know if you'd like. Yeah, let's do that. Let's talk kind of big picture. What do you think is sort of the themes that the markets focus on from a long-term perspective that we could learn from this kind of group of earnings that we're going to get this week?

[00:01:19]>> Yeah, from a long-term perspective, the capex numbers matter because it gets down to return on capital for these businesses. And from a to short-term trading perspective, you know, the reason why they're typically volatile around these prints is because everybody keys on the latest data point and kind of runs that forward. So if revenues accelerate, you know, that indicates, you know, very good returns on that capital. If re revenues come in below expectations, you know, in certain subsegments, you know, that, you know, has people question those those investments. So that's why the volatility is what it is in in the near term around these types of events.

[00:01:57]>> Given how concentrated the markets become over the last several years, as a portfolio manager, particularly within large cap, is it important to kind of match that uh concentration and be overweight some of these names uh relative to other parts of the market given sort of that's where the growth's been? or have you taken maybe a more prudent approach and and sort of reduced into some of that outperformance?

[00:02:23]>> Yeah, two things on that. So one, we don't invest in difference to an index, right? So we don't look at the index and say, okay, well this is 2%, this is 8%, so we're going to be plus or minus 50 basis points or 200 basis points because we really like the name. really we want to populate our portfolios what with what we believe are the best risk adjusted returns regardless of our comparator or or the benchmark on on that metric and so for us you know what what you are alluding to a little bit is that we've seen a little bit of a broadening out over call it the last six seven months and even though some of the soft data so some of the survey data continues to be weak whether it's the umish survey or other like like survey datas um the hard data actually has improved If you look at PMIs and if you look at earnings growth has been broadening out um beyond just of course it continues to be extremely robust within the large caps and megga cap tech stocks but if you look below the surface a little bit we've seen it broaden out beyond that you know in in more midcap names and other parts of the economy as well whether that be more industrials um some of that is is of course due to the capex buildout and we've seen that filter through and diffuse throughout the economy name like Texas Instruments report last week which a lot of people believe is more of an old economy analog semiconductor name but now data center represents over 10% of their business and is growing at over 90% year-over-year. So that's just one example of the diffusion of the capex spend you know coming out throughout the entire economy and it impacting other areas beyond just the most leading edge semiconductor stocks. And so my big question is the biggest theme of the last maybe uh let's call it a couple years has been this this need for compute and the power that kind of drives that. Now some of these names don't necessarily fall into to large cap that maybe they've become that recently.

[00:04:23]Um but they've also just gone you know parabolic to the upside as an active investor not necessarily a trader. How do you look at some of the performance of some of those names and and and see opportunity still or do you?

[00:04:40]>> Yeah. So, I think what you're referencing is more of, you know, on the semiconductor side in the stocks index and certainly that has broken out to the upside as as you alluded to, whereas software names and presumably the the areas who are going to distribute this technology have actually done the exact opposite. So the spread between call quoteunquote hard asset companies you know companies that produce something and asset like companies more database software companies has widened out quite a bit. So from our perspective, you know, I don't want to say the the hardware trade, you know, it's very very difficult to get timing on these, but we're seeing more opportunities in in that ladder category. Businesses that are either perceived to be at risk or, you know, threat of AI um or ones where just the baby's been thrown out with the bathwater because they're included in some of these ETFs or or other likeminded baskets yet their business, you know, we don't think will will be impacted by that. So that's where we're more where we are spending more of our time on and we think it's more fruitful than trying to find the next AI leading edge semiconductor stock where demand is currently off the charts. But of course it gets down to a question of how long will that persist for.

[00:05:56]>> Yeah, I I I like the thought process sort of a uh a look to where some of the the correlated trades have sold off but maybe opportunity in some of those uh beaten down uh names. Maybe software is an area some are looking at for for that type of a trade. Joe uh really appreciate it. Uh Joe Majino, large cap portfolio uh manager at Madison Investment.