Sep 4, 2026 · 1h 30m
Listen from 3:20
Listen at 3:20
AI spending tests the durability of the stock-market bull run
How to Pick Stocks Like Morgan Stanley With Dan Skelly
The conversation examines whether resilient earnings and AI investment can broaden the market rally without creating a new cycle of overbuilding and weak returns.
- 1AI capital spending could support earnings and productivity, but deployment delays and financing risks remain important constraints.
- 2Market leadership is rotating toward healthcare, financials, materials, small caps, and other businesses beyond the largest AI beneficiaries.
- 3Skelly favors concentrated ownership of quality companies, judging exits by thesis deterioration, competition, opportunity cost, and regulation.
Don't miss
Dan Skelly distinguishes today’s AI boom from the dot-com era by contrasting established enterprise customers with the risks of private-company economics and debt-funded overbuilding.
The brief
Morgan Stanley portfolio manager Dan Skelly joins Josh Brown and Michael Batnick to assess a market caught between correction anxiety and fear of missing further gains.
Skelly sees a less cyclical economy, supported by AI investment, reshoring, pricing power, and productivity gains that can lift revenue without matching headcount growth.
The central debate compares today’s AI infrastructure buildout with the late-1990s fiber boom: stronger enterprise demand helps, but stranded hardware and debt financing remain risks.
As leadership broadens, healthcare, financials, materials, and small caps compete for attention while weaker consumer businesses reveal a more divided, K-shaped economy.
Skelly’s portfolio framework emphasizes misunderstood data businesses, concentrated positions, and selling when competition or the original thesis deteriorates—not merely when regulation creates temporary pressure.
What was said on this episode
39 statements · 24 positive · 11 negative · 2 mixed · 2 neutral
Retail investors should largely stop monitoring financial news continuously.
“we often advise and counsel a lot of, you know, normal retail investors to turn it off. Like, just stop paying attention every moment of the day.”
Listen at 9:32
Investors should maintain diversification rather than concentrated exposure.
“having that diversified bent is always top of mind for us.”
Listen at 10:47
The economy remains highly resilient despite policy and inflation pressures.
“The economy continues to be super resilient.”
Listen at 12:01
Companies passed through 60–70% of tariff costs to customers.
“But they passed on 60 to 70% of it.”
Listen at 13:54
AI will increase margins and earnings through reduced labor over 12–24 months.
“I think it's a 12 to 24-month time horizon, is labor actually being pulled in terms of additional margin and earnings. And that's going to be largely AI-driven.”
Listen at 15:46
Future market drawdowns should be relatively moderate.
“whatever drawdowns or corrective experience we get is super moderate.”
Listen at 20:08
AI creates significant risks for small-cap companies.
“AI could be really tricky for small caps”
Listen at 23:27
Less-profitable small caps generally lack capital for AI investment.
“those less profitable small caps don't have the capital to invest in AI.”
Listen at 23:51
Semiconductor supply chains may face double-ordering risk later, though not currently.
“do you have a risk of double ordering in the supply chain of semis of service? Absolutely. Is it a risk today? No. But is it a risk from here for now? Could be.”
Listen at 31:11
Excess AI chips can potentially be redirected to cloud computing.
“a lot of those chips can be reverted back to cloud.”
Listen at 34:06
AI adopters must offset slowing AI infrastructure spending with productivity gains.
“In the next two years, does the margin productivity boost from the AI adopters more than offset what could be a deceleration in the AI infrastructure spending? That is the key handoff.”
Listen at 36:08
Private AI companies currently have favorable demand relative to supply.
“the demand versus supply dynamic to still be in our at our favor. And we think it is.”
Listen at 39:25
Demand and financing terms for hyperscaler debt remain relatively benign.
“the demand we're seeing and even the terms and the spreads we're seeing for a lot of this issuance is still relatively benign.”
Listen at 42:48
AI and energy-sector changes are contributing to divergence in credit spreads.
“this series is diverging because, in part, because of AI and because of some of the compositional and fundamental changes in the energy sector.”
Listen at 48:26
Investors are rotating out of AI infrastructure names and shorting median stocks.
“I think you have people rotating. out of those names and also shorting the median stock as a counter to that.”
Listen at 51:23
Higher rates have driven repricing and increased short interest in lower-quality stocks.
“it feels like the short interest and the lower quality things has re-rated as rates have re-rated.”
Listen at 52:29
Microsoft shifted from aggressive frontier-AI investment toward greater rationality.
“they went 180 from being tip of the spear investing in Frontier to now being more rational.”
Listen at 54:15
AI lowers barriers to entrepreneurship for people with strong ideas.
“AI in many ways is lowering the barriers to entry to being an entrepreneur if you have a good idea.”
Listen at 1:01:17
A near-term surge in Bank of America delinquencies is unlikely.
“it's very unlikely in this earnings picture to have that future B of A moment.”
Listen at 1:02:55
Dan Skelly has maintained an overweight position in U.S. equities.
“we've been overweight U.S. equities for well over a year.”
Listen at 1:05:01
The AI adoption wave will last approximately a decade.
“this adoption wave is going to be a decade long.”
Listen at 1:07:41
Investors should own quality-oriented Fortune 100 companies benefiting from AI adoption.
“we want to own a lot of those Fortune 100 companies that are quality oriented.”
Listen at 1:07:44
AI can reduce phase-one drug-discovery timelines from six–seven years to under 12 months.
“AI in many instances is taking a six to seven year timeline in terms of phase one drug discovery to like less than 12 months.”
Listen at 1:08:18
Skelly’s team has used bottom-up stock selection for three decades.
“For 30 years in a 50 stock context, we've been bottom up focused.”
Listen at 1:09:16
AI and software will remain chronically interdependent rather than software becoming obsolete.
“More likely, in my opinion, back in February was forget about obsolescence. You're going to see chronic interdependence between AI and software.”
Listen at 1:11:39
Palo Alto Networks was correctly valued as an AI winner but too expensive for the portfolio.
“The market has correctly discounted. It's an AI winner, but we run a 50 stock portfolio at 70 times. It was a high tracking error winner. So let's take it out.”
Listen at 1:12:36
Nasdaq earnings are growing in the mid-to-high teens while its valuation multiple remains flat.
“The earnings continue to grow. mid-teens to high teens. The multiple has stayed really flattish.”
Listen at 1:14:31
Nasdaq continues to show strong evidence of AI utilization in its business.
“they continue to generate AI, strong evidence of AI utilization in their business.”
Listen at 1:15:50
Investors should cut cyclical losers faster than other holdings.
“On the stop-loss, cut your cyclical losers faster.”
Listen at 1:18:53
Secular winners generally recover from declines more reliably than cyclical stocks.
“if they're really the secular winners. it can almost always come back. Whereas the cyclicals, different story.”
Listen at 1:20:01
Government and regulatory risks are usually temporary and overestimated by markets.
“On the government regulatory front, it's almost always temporary and overkill in nature.”
Listen at 1:20:34
Persistent market-share losses or brand deterioration often threaten businesses’ survival.
“When companies are losing market share, when a brand is starting to fade in terms of its relevance, that is almost always the death knell of many businesses.”
Listen at 1:21:19
Momentum has been among the most important market factors recently.
“Making momentum one of the single most important factors in markets this year through June 22 and the last five years.”
Listen at 1:25:15
Investors should not ignore technicals and momentum when selecting stocks.
“don't pay attention to the technicals and the momentum at your own risk.”
Listen at 1:25:36
The market will likely trade sideways through the midterm elections.
“at best we trade sideways into the midterm.”
Listen at 1:26:52
October earnings season is likely to show solid earnings acceleration.
“all of the trends and data we're seeing suggests, and the conference season this September should also predict. pretty solid acceleration there.”
Listen at 1:27:04
2027 may bring renewed concentrated outperformance by the Magnificent Seven.
“27 could look a lot like 23, where it's a return of more monolithic mag seven outperformance.”
Listen at 1:27:18
Larger, higher-quality companies may outperform in 2027.
“Bigger is better. Quality is back.”
Listen at 1:27:39
2027 may be a weaker year for small caps and average stocks.
“maybe it's not as good a year for small caps or the average stock.”
Listen at 1:27:51
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.