Lizzie was back in New York City today, joining Charles Payne LIVE in-studio on Fox Business Network 🎬

They discussed the market’s resilience, what Lizzie called “once-in-a-generation earnings growth,” and the stocks she’s watching right now.

In case you missed the conversation, catch the full replay below ⬇️⬇️

 

Transcript:

What is happening with hyperscalers and their AI spending?

Charles: All right, folks, my next guest remains bullish on the market but does caution hyperscalers’ spending that the spenders have to be clear when they communicate return on investment. So, let’s bring in Evans May Wealth Managing Partner Elizabeth Evans. It’s so great to have you in the studio.

Elizabeth: It’s so great to be here, Charles.

Charles: So, let’s talk about this because this is the latest concern that’s got some legitimacy to it. Although I think maybe the last couple of weeks with the earnings and these conference calls, some of that has been tamped down. Nevertheless, the, you know, the credit default swaps are moving higher.

Elizabeth: Yes, absolutely. You know, I think that there’s a lot of things, there’s a lot of skepticism right now. But what is happening with hyperscalers?
This earnings season, investors care less about whether they’re beating or what the forward guidance is and more how is management able to clearly articulate how the spend in AI is going to translate into monetization and incremental return on investment.

Charles: I mean, they think management’s getting better at it. I think midway through because, listen, Microsoft, I mean, the Google’s earnings came out, and I thought the cloud numbers were remarkable. The stock was down. But then later on, other hyperscaler stocks started to take off. It felt like maybe they’re starting to get the benefit of the doubt a little bit.

Elizabeth: Yeah, I think Andy Jassy did a great job. Zuckerberg did a terrible job and then later came out with his essay. So, they’re learning.

Charles: Okay. Yeah. Well, a 6,000-word essay may not be the answer either.

How does the market keep going higher with the Iran conflict and stubbornly high inflation?

Charles: I know one thing is that, that you talked about when you sent your notes over, is that your clients keep asking you, you know, how does this thing keep going up? You’ve got the war, you’ve got inflation. And your answer is, we’re witnessing a once-in-a-generation earnings growth here.

Elizabeth: We are, Charles. As of last Friday, 88% of companies in the S&P have reported. And we’re showing earnings growth year-over-year of 50.4%. So, that is a once-in-a-generation mic drop.
Going into this quarter, expectations were earnings growth of 30, 23.1%. So, there was a lot of concern the bar was set too high and it’s been blown out of the water.

Charles: And putting it in perspective, that 23%, historically, is significantly above the average anyway.

Elizabeth: Triple the the average annual, the average increase over the last 20 years.

How much longer can the market keep going higher?

Charles: So, it’s pretty clear that people are going back to sharpening their pencils. This is a recent survey of institutions. They’re all ratcheting up the earnings. And I guess the question is, after you answer that question, your clients must be saying, hey, how much longer can this continue? For now, institutions think it’s going to continue.

Elizabeth: Yeah, absolutely. And we know that analysts are always behind. So so, what I’ve seen is on the high end 2026, $365 for earnings per share, $420 for next year. So, that would imply earnings growth of 12%. We’re seeing quarter after quarter of 30%. So, I think that we’ll look back and say that was conservative.

Charles: I think anything under 400 is way low. I bet you are going to have 420, 430, like that.

Why is it kind of a good thing when sentiment is still sort of iffy?

Charles: Another thing you point to is sentiment. This morning we had an updated AAII, so we can see again that the bearishness outweighs bullishness there. Of course, you also talked about Investors Intelligence. Why is it kind of a good thing when sentiment is still sort of iffy? Like not everyone’s gung ho bullish?

Elizabeth: Well, Charles, we want to be a contrarian. So, this is very similar to prior data points we’ve seen. Institutional investors are in. They are optimistic about this market. Retail investors are still not. They’re still cautious. So, I’m hearing that every day. And that, as a contrarian, is a good thing for the market to continue to move higher.

Stock Picks:

Microsoft

Charles: All right. Let’s talk about some stocks here. Microsoft is a name that you like here. It just, it’s got the software ecosystem. Ironically, though, the word software might have been hurting this stock for a long time. Like a lot of these software names, it was under pressure. People kept scratching their heads. But you think this part of this story is a good part?

Elizabeth: I do. I think we’re we’re moving from the companies that could build the models and the data centers to ones that could actually integrate AI into large enterprises. Microsoft is at that intersection with Microsoft 365, Azure, Microsoft Teams. So, they also have shown an ability to make an investment without affecting free cash flow, which is what the market wants right now.

Charles: And the market, by the way, responded to that fact, just last week.

Vertiv

Charles: Let’s talk about Vertiv for a moment. VRT, it’s a name that you’ve liked before. You still like it. The “picks-and-shovels” kind of play, earnings growth, a competitive moat. When you say competitive moat, what does that mean?

Elizabeth: So, this this company, so Vertiv is, it’s a company, for viewers who don’t know, that they’re making the power and cooling infrastructure for for data centers. So so, JPMorgan just talked about how wide their moat is compared to the rest of the competition.

Charles: Essentially, they don’t have a lot of competition or limited competition.

Elizabeth: Correct. And they they dropped 17% after their earnings.

Charles: This was the big move. But it’s bouncing off that 200-day. And we think that’s a good entry point. Okay. Great.

Vistra Corp

Charles: Let’s talk about VST.

Elizabeth: Okay.
Charles: Which is not to be confused with VRT. Vistra Corp, sort of same thing. Free cash flow. That’s been a big issue in the market, right? Companies that have spent, spend all their free cash flow, for a while those stocks get punished. You say their free cash flow is really positive.

Elizabeth: It is. 6.6% this year, expected to be at 12.9% in 2028. It’s 33% off its 52-week highs. So, I think this is a multiple compression story, not one of earnings deterioration.

Charles: So, we’re going to kind of watch this mosey along. And it’s no pattern. All of a sudden bam it’s going to take off. And I’m just going to say, God, Elizabeth said I should buy that stuff.

Elizabeth: That’s what I hope.

Charles: All right. Good stuff. Great seeing you. You’ve got to come more often.

Elizabeth: Thank you for having me.