Welcome to Stocks and Translation, Yahoo Finance's video podcast that cuts through market chaos, noisy data, and hype to provide clear insights for making the right portfolio trades. I'm your host Jared Blicky, joined by Yahoo Finance senior reporter Ali Canal, connecting Wall Street to Main Street. Today, we focus on the AI trade as earnings season approaches, featuring our phrase of the day: multiple expansion—when stock prices rise despite flat or declining profits, driven by investor willingness to pay more per dollar earned. This is timely as tech earnings start rolling in. We’ll also explore market correlations, examining why Nvidia and Arista Networks are diverging within the AI trade. This episode is sponsored by the number 1, 244—the count of operational hyperscale data centers worldwide, with 527 more coming soon. The AI boom is uplifting many sectors. We welcome back Chris Versace, CIO at Tomatica Search, early thematic investing advocate, co-author of Cocktail Investing, and a regular Yahoo Finance contributor. Chris opens with his market overview amid this year's ongoing turbulence, noting concerns about renewed tensions between China and the U. S. ahead of an expected Trump-Xi meeting. Bank earnings have been strong, but the government shutdown and furlough extensions threaten consumer spending and the IPO market. Despite this, investors appear unfazed, buoyed largely by AI-driven optimism. Chris and Jared discuss multiple expansion, explaining that stock price gains often reflect investor sentiment more than profit growth. Chris attributes this to growth expectations and heavy funding in AI, especially within the concentrated tech market. He believes we are not in an AI bubble—more likely in the mid-innings of this trend. While circular funding deals raise some worries, Chris emphasizes strong cash positions of key players like OpenAI and Nvidia, indicating competitive positioning rather than reckless speculation.

He projects clearer outcomes by 2026-2027. Regarding capital expenditures (capex) by hyperscalers, Chris expects continued growth through 2026, with caution for slowing AI adoption that may eventually reduce demand—paralleling the mobile phone adoption curve and the 2001 internet bubble cautionary tale. Debt funding for growth is a risk to monitor, akin to companies buying back stock through debt—something investors should watch closely. As an investor, Chris advocates playing the entire AI ecosystem, focusing on bottlenecks such as data center demand, network capacity, and specialized chips, rather than only the well-known hyper-scalers. He mentions portfolio holdings like Arista Networks and Marvell, which target networking and AI data center chips, alongside Nvidia. In Market Show & Tell, the team analyzes market correlations, highlighting the recent decoupling of Nvidia and Arista Networks—from a 0. 6 correlation to about 0. 1—signifying independent price movements. Chris stresses understanding why such divergence occurs and highlights that AI will likely lift multiple stocks rather than a single winner, cautioning against “winner-takes-all” thinking. However, he notes risks, such as funding dependencies among key players. The discussion moves to hedging amid volatility, noting gold's surge likely reflects inflation and economic concerns rather than a direct tech trade hedge. Chris suggests inverse ETFs for tactical hedging but emphasizes they are short-term tools, not long-term holds. Returning to hyperscale data centers, Chris outlines investment avenues: real estate investment trusts like Equinix and Digital Realty Trust; hardware providers including Cisco; chips; server racks; and energy infrastructure stocks like Eaton, plus emerging sectors such as nuclear energy (e. g. , Oklo) to meet increasing power needs. He also flags a looming surgeon shortage tied to an aging population as another thematic investment frontier. On leveraged ETFs, Chris reveals limited usage in his portfolio, utilizing only simple inverse ETFs (e. g. , SH, PSQ) during market downturns for protection, emphasizing these as tactical trades rather than core investment strategies. He differentiates trades from investments by their time horizon and reliance on identified catalysts versus a multi-year thematic approach. Other thematic interests include cybersecurity, especially as attackers employ AI, creating an iterative arms race. Given economic headwinds—tariffs, food prices, and a cash-strapped consumer—Chris also highlights retail names like Costco, TJX, and Ross Stores for the upcoming holiday season. Shifting gears to a “Who Wore Better” segment themed on Bruce Springsteen, Chris opts for the "live show" analogy—a spectacle capturing the current market environment, driven by momentum and multiple expansion—over the steadier "studio session" of consistent earnings power. This reflects the excitement but also bubble concerns in the AI trade. On risk management, Chris underscores two key practices: position sizing—trimming positions exceeding roughly 4. 5% to lock gains and redeploy—and “panic points, ” predetermined stock price levels triggering reevaluation. Regarding “buying the dip, ” he advises assessing both market conditions and individual stock fundamentals, citing recent positive indicators for Apple, such as strong iPhone shipments and upcoming foldable models, as reasons to buy selectively. For index investors, monitoring technical indicators like moving averages, MACD, and RSI can guide dip buying decisions. Concluding with earnings season outlook, Chris expects tech to pleasantly surprise amid overall market volatility. He notes recent market advances have been driven by multiple expansion rather than earnings growth (E), cautioning that sustained gains require rising earnings. Finally, Jared thanks Chris for sharing insights on earnings, risk, and investment themes. They wrap up Stocks and Translation and invite the audience to catch other episodes on Yahoo Finance’s platforms. In summary, the episode centers on understanding the AI-driven market dynamics, evaluating risks like funding and concentration, exploring investment strategies across the AI ecosystem, hedging approaches, and managing risk through position sizing and defined exit points—all within the context of an earnings season poised for surprises and volatility.