Adam Parker returns to Excess Returns to explain why the market may be trading more on future fundamentals than investors think, how AI is reshaping stock selection, and why traditional valuation signals may be less useful than they once were. We discuss AI revenue exposure, software vs. semiconductors, Mag Seven positioning, gross margins, estimate achievability, spinoffs, and Adam’s highest-conviction contrarian sector idea. Adam Parker on X https://x.com/Adam_Parker_Tri Trivariate Research https://trivariateresearch.com/ Trivector Research https://www.trivectorresearch.com Topics covered: Why “sell in May” and other calendar-based market rules often lack statistical support Why Adam thinks the stock market leads the economy, not the other way around How to think about whether today’s AI market is a bubble Why the market may be trading on 2030 or 2031 fundamentals When investors may start demanding returns on AI capital spending Why AI could create new jobs rather than simply destroy existing ones How large AI-related IPOs like SpaceX could affect index mechanics and portfolio flows Why gross margin expansion is one of Adam’s most important stock selection factors Why Adam remains cautious on software and prefers semiconductors over software How valuation, quality, and other traditional factors may have changed since COVID Why estimate achievability and incremental margins matter more than simple beats and misses How to think about the Mag Seven, Nvidia, and market concentration Why spinoffs may become more important in an AI-driven market Why healthcare is Adam’s highest-conviction contrarian sector idea Timestamps: 00:00 Why the market may be trading on future fundamentals 04:37 Is today’s stock market an AI bubble? 08:45 When AI capex needs to show real returns 13:00 How trillion-dollar IPOs could reshape index mechanics 19:00 Why gross margin expansion is such a powerful factor 23:00 Why software companies face AI-driven margin pressure 27:21 Where AI semiconductor exposure goes next 31:54 Why valuation does not work for stock picking 35:03 What has changed in markets since COVID 39:22 Estimate achievability and incremental margins 43:06 How to think about the Mag Seven and Nvidia 47:55 Why healthcare could be the biggest AI opportunity

Cheap Is a Warning, Not a Thesis | Adam Parker on What This Market Is Really Pricing

Excess Returns 

# Full Transcript

**Podcast:** Excess Returns

## Participants

- **Excess Returns Hosts** (None)
- **Adam Parker** (Trivariate Research / Adam Parker Research)

## Transcript

Die Commerzbank steckt voller Geschichten. Und auch wenn wir vielleicht nicht jeden Traum unserer Kunden kennen, wissen wir, wie wir aus ihren Ideen, Plänen und Anliegen gemeinsam Erfolgsgeschichten machen können. Wann sprechen wir über ihre? Gebaut aus 155 Jahren Erfahrung und den Erfolgen unserer Kunden. Commerzbank, die Bank an ihrer Seite.

Let's say it's kind of, it's like, you know, kind of like retail idiots or crypto bros or whatever people want to say on the institutional side when they're underperforming. But the truth is, it might be trading at fundamentals. It might be trading on a distribution of outcomes of 2030 fundamentals or 2031 or something in the future. Valuation doesn't work to pick stocks. I mean, I don't know how many times you have to, how many years you need to know that. Like, I mean, I actually have kind of changed my view on that to the point of like, I just

almost think it's arrogant now if you say I buy a stock because it's cheap. We think only 9%, 262 out of the top 3,000 public US equities are currently generating any meaningful AI revenue. Adam, thanks for joining us and welcome back to Excess Returns. Thanks for having me. And so much for selling May and go away, I guess. I always think those things are a little rough. I mean, we actually did some analysis on that point and you need like a few hundred more

years to prove it statistically significant. So it's one of those things where like, you know, you just could have had some spurious things that happen and then people think it's a trade. But yeah, I don't, I'm not a big believer that I think we studied it's the third worst month out of the 12 in the last hundred years, but it's nowhere near statistically significant. So I don't, I'm not a huge believer in those. That's a little astrological. Yes. Well, I kind of said it tongue in cheek because I know that, you know, I've tried very, where

you're focused on is analysis over antidotes, combining quant and judgment. And I think understanding, you know, what is different between sort of cyclical and structural in the markets. And one of the things that you said recently, I don't know if it was from that great Barron's article or it might've been some other piece of research that you guys put out. But one of the things that you've said is a stock market leads the economy, not the other way around. And that you'd rather be wrong, uh, based on your inputs rather than listening to some

economist forecasts. So I just thought that might be practically a good place to start and sort of articulating how you kind of think about the markets and build your view. I'm not, I didn't mean to like insult anyone with that. I mean, the idea with when you work at a big firm, I used to work at Morgan Stanley and, um, you know, the big firms have these ye...

Cheap Is a Warning, Not a Thesis | Adam Parker on What This Market Is Really Pricing

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Cheap Is a Warning, Not a Thesis | Adam Parker on What This Market Is Really Pricing

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.