Logic Monday Espresso Podcast

Monday Espresso Podcast - 24th November 2025

Rory Dowie: [00:00:00] Good morning and welcome to the podcast. Today's Monday the 24th of November. My name is Rory Dowie, Portfolio Manager here at Marlborough. Today I'm delighted to be joined by Andrew Shaw. Andrew is one of our Senior Investment Analysts here. So firstly, good morning, Andrew.

Andrew Shaw: Morning, Rory.

Rory Dowie: First things first.

Rory Dowie: How did markets get on last week?

Andrew Shaw: Equity markets fell across the board. Last week, Japan was the weakest market falling almost 5%. Europe and the US were down around 3%, and the UK market was down 2%. We've spoken about this over the last couple of weeks, and November has proven to be a rather volatile month across the board and after last week, so for the month, US is down 6%.

Andrew Shaw: Japan, 7%, and the UK and Europe performing slightly better, but still down 3%.
Rory Dowie: Yeah, so clearly the market having a bit of a reset following the strong months we've had since April with this sort of supposed AI boom. I suppose. A couple of questions. Firstly, can you shed any light on what was causing the softness, Andrew?[00:01:00]

Andrew Shaw: In my opinion, the sell off we've seen in November has been down to two main factors. Firstly, given the strong market run we've had for the year, I mean, there's got to be some profit taken at some point and given the high valuations of companies, we think that's happened. As you mentioned last week, Rory earning season has actually been very, very strong with earnings of 13% or so year on year, and about 85% of companies having beaten expectations.

Andrew Shaw: But perhaps maybe the reason that the narrative is shifting is that AI is moving away from a more linear environment in which tech and AI stocks go up to a more sober one where fundamentals and cash flows actually start to matter again. We note here that the greater than $1 trillion of commitments OpenAI is signed and that's through to the back of 2030.

Andrew Shaw: And then high absolute levels of CapEx or capital expenditure, are forecast to get from the hyperscalers, such as Amazon and Google. And how does OpenAI finance those commitments? And [00:02:00] the hyperscalers, how long is it until we actually see return on all this capital expenditure and to see healthy cash flow?

Andrew Shaw: Actually, if you lift the hood on, which sectors have been performing well, this sell feels like a cash flow rotation. What do we mean? Well, high quality parts of the market have performed well. For example, consumer staples. Companies like Coca-Cola, sticky recurring revenues have done well.
Andrew Shaw: Similarly, healthcare. Then on the other side you've got tech that's sold off. So investors have been buying into companies that have strong cash flows.

Rory Dowie: Yeah. So clearly they're a bit of nervousness around some of these large capital expenditures and when we actually might see a return on this spend. So I think investors are a little bit concerned that the, you know, the margin profile of these companies.

Rory Dowie: So, you know, they're quite profitable at the moment, but that might get worse. You know, the more money they spend, assuming that they don't get to return on that spend. I think it's worth reiterating selloffs in markets are very common.

Rory Dowie: We actually ran some analysis and if you look at equity market returns back to [00:03:00] 1980, it's actually very common that you get a 10% pull back in markets and actually that generally has happened on average about once a year.

Rory Dowie: So look, market volatility, it's not very nice when you're going through it, but it's very, very usual. So I guess Andrew, that leads us quite nicely into Nvidia, who reported earnings on Wednesday. Obviously Nvidia are the sort of darling in the AI space making those advanced AI chips.

Rory Dowie: Andrew, can you give the listeners some insight as to what those numbers said?

Andrew Shaw: In a sense that the results were enormous. Revenue came in above expectations at $57 billion, and data centers alone accounted for over $51 billion. In the aftermarkets this stock was up 5% and seven Thursday morning, but then the stock fell back. These earnings were very impressive and showed that there's insatiable demand for AI technology that Nvidia makes.

Rory Dowie: Yeah, so I guess Andrew, as we've become used to company performance, was, was very, very strong. But actually as we've seen this earning season, the market didn't reward the company for that good performance. So I guess it's just reiterating that point. The fundamentals, this earning season have been very [00:04:00] good, which is why we think this is more a market correction, which are obviously quite common, and we don't think it's anything more sinister at this stage.

Rory Dowie: So I guess moving on, Andrew, we had UK inflation data last week. Were there any insights there and has there been any change in view that we might get a rate cut in December in the uk?

Andrew Shaw: UK inflation fell for the first time in seven months with consumer prices increasing 3.6% in October compared with a year earlier, and that was down from 3.8% in September.

Andrew Shaw: So the drop to the lowest inflation rate since June was driven by energy prices rising by less than they did in October 2024. Services inflation has edged down as well to 4.5%. We think this opens the door for a December rate cut and so fingers crossed for an early Christmas present.

Rory Dowie: Yeah, good to hear that.

Rory Dowie: So inflation coming down in the UK and yeah, maybe we get that rate cut in December. Good stuff. Anything listeners should look out for?

Andrew Shaw: It's a relatively quieter week this week. Usual slew of economic data across [00:05:00] Europe and the us, which we'll be keeping an eye on.

Rory Dowie: Brilliant. Thanks for joining Andrew to all our listeners.

Rory Dowie: Hope you found that useful and wishing you all a great week ahead.