The AI-driven rally has propelled U.S. equities to one of their strongest quarters in years, but it has also concentrated gains in a relatively small group of companies. As spending on AI infrastructure accelerates, some investors see opportunities emerging in quality businesses that have been overlooked.
BNN Bloomberg spoke with Joe Maginot, portfolio manager at Madison Investments, about why he believes investors should look beyond the AI trade. He discussed the risks of concentrated leadership, how rising AI investment is changing the capital cycle and where he sees value in quality growth companies.
Key Takeaways
- Semiconductors now account for roughly 20 per cent of the S&P 500 Index, highlighting the growing concentration of the AI trade.
- Rising AI-related capital spending is pushing some large technology companies to rely more on debt and equity financing to fund expansion.
- Investors should assess whether AI changes a company’s competitive position and long-term business economics rather than focusing solely on AI exposure.
- Quality growth companies without a direct AI narrative have become relatively inexpensive compared with more cyclical technology businesses.
- Businesses with durable earnings growth and limited dependence on AI enthusiasm may present attractive long-term opportunities.
Read the full transcript below:
ROGER: All right, U.S. markets are having their best quarter in six years, driven by chip stocks. But our next guest says that, in technology-forward industries, what looks certain today can end up looking fragile if you look at it over a long time frame. Let’s get more now from Joe Maginot, portfolio manager at Madison Investments. Joe, thanks very much for joining us. What’s the concern for you here?
JOE: Yeah, our view on, I mean, as you just alluded to, it’s been quite the quarter driven by technology stocks, and right now the market’s pretty much either painting your company as an AI beneficiary or an AI loser. Our perspective is more of, over the long run, ultimately fundamentals matter, and what looks certain today, as, as you alluded to, could change quite a bit. You know, you know, one of those topics, obviously, is resolving these bottlenecks within memory, which has led to the outsized returns for a select group of companies in, in the U.S.
ROGER: And how much of a concern is that, and also the, the capex that they’ve got going on right now, especially in tech?
JOE: Well, you know, from the U.S. market now, semiconductors account for about 20 per cent of the S&P 500, which, which is a record high. So, from a pure stock market perspective, obviously that, that would be a concern for investors. And if you look out over time, historically these bottlenecks have been resolved, right? Generally, you know, we’ve seen it from some participants announcing large capital expenditure programs, which ultimately would bring on more capacity and more supply, which would bring pricing down. The big three players in memory, some of them have announced capacity expansion. Some Chinese companies have as well. And then the second bit of it, which perhaps is the broader AI theme, is just funding. If you look back a couple of years ago, you could have said, well, you know, the operating cash flow from the hyperscalers, so the Metas, the Alphabets, the Amazons, Microsofts of the world, you know, still far exceeded the capex that, that they were committing to this buildout. Well, today you’re in quite a different situation, where the operating cash flows are just about covering capex, right? Capex and operating cash flows are about the same. So, you know, how do you invest in excess of those cash flows? Of course, it’s through issuing debt and equity, which we’ve started to see. Alphabet’s come to market. There’s been chatter of some others as well. And then, of course, SpaceX IPO-ing, and then now talks of Anthropic, OpenAI potentially IPO-ing, you know, either this year or in the next year. So that is certainly something that investors should keep an eye on for the continuation of, you know, that trade, so to speak.
ROGER: And some debt isn’t necessarily a bad thing, though, is it?
JOE: Can you repeat that?
ROGER: Right. Some debt isn’t necessarily a bad thing.
JOE: No, no. I mean, their balance sheets remain in pretty good shape, all things considered. Alphabet has a good balance sheet. You know, all these guys do, really. It’s just more of, you know, you’re committing capital today in excess of what you, you know, are currently generating in cash flow. So, I would agree with that, you know. In full disclosure, we, we own stock in Amazon, Alphabet and Meta. We certainly think that the hyperscalers are certainly beneficiaries from this spend, you know. We certainly think there are other areas as well, but just, you know, our concern is more of investors putting large multiples on what are otherwise fairly cyclical businesses within the semiconductor sphere, which is very different than historically. Historically, GARP stocks, so growth at a reasonable price, companies that were fairly resilient through times of economic uncertainty, very durable, high-single-digit, low-double-digit type businesses commanded large premiums. But it’s actually flipped today, where those stocks are trading at more market multiples, or in fact discounts, and more cyclical businesses are trading at large premiums.
ROGER: All right, let’s take a look at some of the stocks you’re looking at. Danaher right now. What, what are you liking there? What are you keeping an eye on with it?
JOE: Yeah, Danaher’s a life science tools company in the diagnostics business. For us, you know, a lot, that entire industry has actually been left behind. Danaher is one of the leaders in that industry. Traditionally, this is a company that has remade itself from an industrial conglomerate into today a very focused life science tools company. I mean, after a COVID hangover, where it went from the best of times to the worst of times in fairly short order, they finally worked through a lot of the quote-unquote stocking and destocking within those markets and have returned back to pretty resilient growth. And there’s no real AI story around it, and Danaher specifically, and life science tools at large, have largely been left behind throughout the most recent rally. And Danaher is a company that we like, we’ve owned for a long time, we think is very resilient, regardless of the economic environment, and is a business that will continue to compound its earnings and cash flows, well, in the low double digits for a long period of time. But it’s just pretty underappreciated here.
ROGER: All right, Visa, a classic. What’s going on there?
JOE: Yeah, very similar story to Danaher, although perhaps additionally with Visa, is it’s, as I’m sure you’re well aware, and your viewers are well aware, a lot of these asset-light businesses have sold off by quite a bit on AI concerns as a group. Visa, you know, just this past quarter reported really good earnings numbers, again very consistent with the long arc of this company that has benefited from the digitization of cash payments globally, and that continues to this day. And more recently, their value-added services have gained a lot of momentum. And again, here’s a company compounding its earnings well into the double digits that’s now trading at right around a market multiple.
ROGER: Okay, and we’ll sneak in one more, Intercontinental Exchange, before we’re out of time.
JOE: Yeah, just like Visa, Intercontinental Exchange has sold off quite a bit. It’s another asset-light business. Historically, this is a business that’s commanded a large premium to the market multiple that’s now trading at a very large discount. And actually, this past quarter is one of its best quarters in company history. Obviously, with the volatility in energy markets, its flagship benchmark, you know, is traded on its exchanges. Very similar story, where here’s a business compounding its earnings well into the double digits over time, we believe, yet trading at, you know, a 20 per cent-plus discount to the market just because it doesn’t have an AI story associated with it. It’s an asset-light business, and it’s being, in our opinion, mischaracterized as an AI loser.
ROGER: All right, we’ve got to wrap it up there, Joe. But thanks very much for joining us.
JOE: Appreciate you having me. Thank you.
ROGER: Joe Maginot, portfolio manager at Madison Investments.
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This BNN Bloomberg summary and transcript of the June 30, 2026 interview with Joe Maginot are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
