A wave of AI-driven capital spending by major tech firms boosted US equities last week, following second-quarter earnings, but Bill Mann of Motley Fool Asset Management warns that infrastructure bottlenecks and shifting tariffs could pose significant headwinds.
The chief Investment officer shares his views on what supply chain issues and the shifting global tariff regimes could mean for tech valuations long term and urges investors to prioritize fundamentals, manage risk, and look beyond short-term market noise.
Interview
Jo Gallagher Many large tech firms announced their AI cap expenditure this earnings season, which saw US stocks soar. What is your view on tech valuations, and do you foresee any long-term risks?
Bill Mann I tend to break things down to their core. Microsoft this last week became the second U.S. Company to reach a $4 trillion market cap. $4 billion in market cap means that the market is expecting Microsoft to earn on a depreciated basis $500 for every man, woman and child on the planet. Can they do it? I think that they probably can, but the timing becomes important and so we start looking at bottlenecks. And one of the most underappreciated bottlenecks is the actual construction that’s going to have to take place in order for these companies to meet demand, particularly in the power complex. And I don’t know that it’s being talked about enough. So take, for example, a company like EMCOR, which is a component of our TMFE (The Motley Fool exchange-traded fund) portfolio. It is an electric construction company and they have a book to bill at the moment of 1.18, which means that demand is rolling in faster than they are able to meet it. We’re hearing anecdotally of companies in the electric equipment space that have backlogs that go past 20-30 and they don’t have any real capacity to expand and so they’re to name whatever price they wish. This backlog and this bottleneck has the potential to slow down even the capacity for these tech companies to be able to meet demand. And it’s a real question right now whether there will be sufficient capacity for them to do so.
Jo Gallagher Q2 earnings has been marked by volatility, and at times we’ve seen a disconnect between results and market reaction. What are the main data signals that you hone in on in trying to navigate this environment?
Bill Mann At Motley Fool Asset Management, we tend to focus on high-quality companies that tend to have lower exposure and lower sensitivity to macroeconomic factors. So we’re much more driven by strong fundamentals than we are really worried about the signals that you see from quarter to quarter. That said, one of the things I think is very interesting about this earnings season is that companies were basically given a hall pass from the last earning season in that they weren’t able to give much clarity in terms of how they were going to be impacted by tariffs, because we didn’t actually even know what the tariffs were going be. And it’s maybe the least visibility that we’ve had since the early days of COVID in 2020. One of the things that we’ve been paying attention to is you see companies like Starbucks, who came out this last week, and they reported generally bad earnings, but they also at the same time gave pretty good visibility into where they are when they were doing and the market rewarded them as a result. So companies that have visibility, even if that visibility is bad, seem to be doing Okay. Companies around the world are signaling that the U.S. Consumer market is still the center of the global economy, and they want access to it. And so one of the more interesting things that we have noted is how countries, even if they’re not happy with their own tariff rate, are paying very close attention to how that tariff rates correspond with other countries that they’re competing with. For example, the Korean foreign minister last week mentioned that he wasn’t happy about a 15 percent tariff between Korea and the United States. But at the same time, it was acceptable that theirs was the same as Japan and as the EU’s. The countries that are being left out right now are ones that are basically trans-shipping Chinese goods. It’s pretty clear to me that the tariff regime is meant to force countries to choose between siding with the United States on a trade perspective and siding China. Two of the countries with the highest tariff rates, Myanmar and Laos, primarily import to the US based on manufacturing from Chinese companies. And so there are other shoes to drop in terms of the tariff regimes, particularly as countries interact with each other outside of the United States in terms their own regimes. You could also look at areas like the pharmaceutical industry. The United States is the largest pharmaceutical market in the world. It has the largest pharmaceutical companies in the World, and yet the United States imports two hundred and twelve billion dollars worth of pharmaceutical goods each year, one hundred and fifty billion of which comes from the EU. Fifty billion comes from Ireland alone. If you look at companies like Eli Lilly, which is a member of TMFC (The Motley Fool 100 Index), Eli Lilly has a huge amount of manufacturing in Europe, but they’re not necessarily going to make the decision to hold that manufacturing back into the US and take on a new capital expenditure program because these tariffs might change. And as we saw late last week, they have continued to change pretty quickly. So I think that you’re going to see a little bit more status quo than we might think when it comes to global trade and what companies are going to do. And I think that investors really need to keep that front of mind. I think one of the most important things to think about is the fact that this is statecraft-driven. And so companies are going to announce their capital expenditure plans and they’ll probably be pretty loud about it because they are, by moving back into the United States, if they make that decision, are looking to curry favor with the current administration, saying, look, we are doing what you are asking us to do. We are doing the thing that you have created incentives for us to do, so. I think there are very few companies that will be quiet about their capital expenditure plans if they are choosing to move their manufacturing and production and services facilities.
Jo Gallagher So how would you advise trading desks to approach the remainder of Q2 earnings season and the ongoing tariff volatility?
Bill Mann We have an interesting conundrum in that the US markets are still amongst the most highly priced in the world in terms of their multiples, and yet the S&P 500 in 2025, it’s only up about 6.6% and it has underperformed most other markets in the world. The MSCI World being up nearly 10% during that same period of time. Small caps in the US, as measured by the Russell 2000, are essentially flat on the year, which is a sign the market is more unsure about how they are going to respond to the macroeconomic forces that are out there. There are other segments of the market that have not participated at all. We mentioned small caps, but there’s also the pharmaceutical segment, which is currently at its lowest ebb, one of its lowest valuations in the last 40 years. And is also a huge part of the US economy, but it is the lowest it has been in terms of its composition of the S&P 500 in the last three decades. So we believe there’s a lot of opportunity there to be had for patient investors, and we really do recommend that people ignore the short-term movements of the market and those short- term macroeconomic factors, because the market really is generally pretty good at building those into its valuations. And it really depends on making sure that you understand what your risk appetite is. I mean, the analogy that we tend to talk about at Motley Fool Asset Management is if you’re looking for a lazy river, you need to understand that right now the market is assuming that a lot of things are going to work out that aren’t necessarily going to work out. And so, I would be suggesting that people limit their risk appetite at this point and look for parts of the market that have not participated in what has been a multi-year increase in both price and expectations.
Jo Gallagher Thank you Bill for your insight, and of course, you for watching this has been Trader TV This Week.
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