Closing Bell - Closing Bell: Live From the Sohn Conference 5/12/26

Episode Date: May 12, 2026

Scott Wapner speaks to some of the biggest names on Wall Street live at the Sohn Conference in New York City. We bring you one-on-one interviews with famed short-seller Jim Chanos, Greenlight’s David Einhorn, Avenue Capital’s Mark Lasry and the great software investor Orlando Bravo of Thoma Bravo. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, guys, thanks so much. Welcome to closing bell. I'm Scott Wapner, live today from the 31st Sone Conference here in New York City. An annual event that raises money to fight pediatric cancer and CNBC is so proud to be affiliated with this great cause. We do have an exciting hour ahead of us today, some very special guests. Fame shortseller, Jim Chanos will join me momentarily right here. Greenlights, David Einhorn, Avenue Capitals, Mark Lazary, and the great software investor Orlando Bravo of Toma Bravo. all along and just a bit with their best investing ideas right now. I'll show you the scorecard here with 60 to go in regulation because the market picture has changed a little bit, at least. The Dow has gone green. Elsewhere, we are struggling a bit. As we do begin this final hour, that hotter than expected inflation read is a weight today,

especially on the NASDAQ, which is down 1.5%. You saw the Russell was weaker as well. S&P NASDAQ have been at record high. So tech's pulling back a bit, and that's where we do begin. this record run for stocks and the takes of some of the world's most notable investors. Let's bring one in. Jim Chanos is the Chanos and company founder and president.

Good to have you back. Welcome. Good to be back, Scott. You told me this is your first was in 2000, your first zone conference. Why do you keep coming back? Well, it's an amazing, and I want to apologize for my voice being out a little bit. It's an amazing conference for an amazing agency. I've been happy to be involved. I did their first London conference back about 15 years ago and then did a number of conferences for them 25 or so years ago.

So I've always been a part of this and it's always a great honor. You surprised me for a moment when you walked over here and said it's a great environment for short sellers. I'm thinking myself, what is you talking about? Yeah, I mean, the markets are going straight up. Yeah. So how is it good? There's been a lot of dispersion. We talked about it in our panel.

all three of the short sellers that were on my panel, I believe, are up in their short portfolio in the year, as is our model portfolio for clients. There's been a lot of dispersion. I mean, if you are in AI or data centers or that semis, you're struggling. But an awful lot of stocks are flat to down this year, and particularly consumer stocks.

That said, you are short, some data center plays. Oh, it has to be. Why? And I'll just say what they are now. It's digital realty and Equinix. Names that you have been. Yeah. We've been short for a while, right?

Yeah, yeah. That's against a pretty strong tide, isn't it? Well, I mean, they're not great businesses. And what we bifurcate our view on AI data centers is looking at the actual what the business is. And the actual landlords or these kinds of deals are really not very profitable. They're very low return on capital business. very capital-intensive businesses, and they don't grow that fast.

They're growing mid-single digits. So the legacy data center companies are a distinct difference from the data centers that are now being built for AI. Let's make that clear. But even in some of the more recent popular stocks, we're beginning to see business models that just don't make a lot of sense.

Basically equipment leasing businesses that are dressed up as AI high-tech plays. And that's where we would tell investors to be a little careful on how they look at, is this really an AI company or is this a real estate company? You look at the kind of market we're in and you've seen a lot of pivoting, if you will, to try and become more of an AI company even when you are not and have never been. I can only imagine what went through your mind when you saw Allbirds make the decision and the announcement that they did.

and what sort of memories that might have brought back for you. That brings back the memories of the late 90s where everyone was basically hammering on a dot com to the end of their corporate name. And we've now seen that very recently with AI. I think Warby Parker made an announcement that they're going to have glasses that are AI driven. And so, and we see it in our conference calls on the companies that we do follow. Increasingly, you see mention of AI, trying to be. burnish the business and the multiple. Are we rhyming with the late 90s now or or is this time wholly different? I mean, because there are some differences. You've got real businesses versus,

you know, certainly questionable ones back then. No revenues, no profits. This is different in some respects, isn't it? Or no? I'll push back a little bit, Scott, because you have to remember that in the late 90s, most of the spending was being done by enterprises. The amount of spending that was being done by dot coms and then the CLEX and the fiber guys, which were the three unprofitable business models, was relatively small compared to what AT&T, Merrill Lynch, Bank America, GM were spending on upgrading their systems. And I remember we replaced all our PCs in 1999 because of Y2K. So there was a pull-through for that as well.

And one of the things we're telling our clients that you have to be careful about is that when you see these massive, massive KAPX booms, it's tremendously profitable for earnings. Not only are the vendors getting premium prices for their products, which is fine, but the buyers of the products are not expensing them. So when Nvidia sells a chip to Microsoft or Google or what have you, Nvidia recognizes revenue and profits, Microsoft capitalizes that and writes it off over five years. And so you have a mismatch in the financial economics of the AI buildout. And that is incredibly positive for profits.

The bad news is if it reverses and order books collapse and premium margins evaporate, earnings collapse. But that's a big if. Yeah, of course. No one knows sort of the answer to that question. And it may be too early. When you make an analog, I guess, to the later stages of the 90s, you know, I'm wondering what you make of someone like Paul Tudor Jones on the network the other day, suggesting that you got another year or two left in this AI-driven boom. You may think that it's going to end badly eventually, but that doesn't stop you from riding the wave of the current boom that we're in.

How do you distinguish between the two events? if you're long or short those companies. Sure. But they are, again, a subset of the market. As many are. Yeah. Well, and again, that is a place. I think that what investors should worry about or concern themselves about it

is that they don't pay too high of a multiple for what are cyclical earnings, not secular earnings, right? And we have to make a distinction between that as to what is getting premium pricing and is the subject of a cap-x boom that might submit. side or at least slow down versus what is sustainable profitability from AI models. How would you judge? I'm really curious. As you look at the tremendous run, the parabolic moves really in like a micron, right, in like a memory name, you can see why it's happening. Yeah, of course. But to your point about multiples keep going up, that multiple comes in.

Right. That multiple's been coming down. Right. It's like seven times forward earnings because of the outlook for what their revenue prospects and their earnings power actually is going to be. How do you view something like that? I choose not to play. We have no position in a name like Mike Ron or S.K. Heynix or any of these plays where it is a temporary shortage or a more less than temporary shortage where, again, you're getting premium prices and always remember in these kinds of cycles, people are double and tripling orders to make sure that they get the supply they need. And we saw that, and that's one of the reasons why earnings collapse so dramatically in 01 from 2000, when the order books dried up, they dried up immediately. Merrill Lynch didn't

need 20,000 servers. They needed 4,000 servers. So they cut back. They cut back the orders to Cisco and Lucid and Nortel. And again, we don't see any evidence of that yet, but the risks of that are rising as everybody is scrambling to put on as much compute as they can. I mean, I don't. I mean, That's the greatest unknown, is that you never know that you've wrapped too much fiber around the earth until you've already wrapped it. Right. And it remains to be seen as to whether we're in that kind of environment. What do you make of the so-called circular deals that we've seen? Yeah, I mean, you have to wonder about them.

Again, another parallel to the late 90s is the telecom equipment companies increasingly finance things like C-lex and other venture-type investors who then turned around and bought their equipment. It was never huge as a percent of revenues back then. It's not huge as a percent of revenues now, but it's something you have to keep your eye on. It's not what drove things down in 2000 to 2002. I doubt it will drive things down in the future

whenever that might happen, but it's just not something as a shareholder. I think you'd want to see where your company is financing. it's customers. You're still short Tesla. Yeah. Forever? It hasn't gone anywhere in five years. Just don't ask me about 19 and 20.

It's stock's been flat for the last five years. So look, Tesla is the hopes and dream stock in this market. I've said that for years. It's trading at now 300 times earnings. And people are willing to believe that it's going to going to be data centers in space via SpaceX and terra fabs and whatever this. Do you doubt that? Yeah, I doubt most of that. The core business has been declining now for a number of years.

I think earnings peaked in 2022. So this is increasingly as time going on, more of a hopes and dream stock for retail investors. And I heard one of your guests this morning talk about data centers in space and things that. So we're building literally castles in the sky. on the story. So we'll see. I want to get to one more thing before we go. So you closed out the the short that you had Bitcoin-related micro strategy. Yeah, that was our big short last year. You were short micro strategy. You were long Bitcoin as sort of the pair trade that you always had done when you were running the hedge fund. Why did you get out? Oh, just the so-called premium

the MNAV collapsed. So we were doing it between two and two and a half and in November, it got down to about 1.2 and we took the trade off. I think it's about 1.3 now. So it was an arbitrage. It was simply, we were buying Bitcoin and selling it more expensively. And it was a little bit perplexing because the trade was so big. It was an $80 billion discrepancy at one point, which is rare in these kinds of trades. Usually they're hard to put on or you can't borrow the short or whatever.

This one you literally could do in billions of dollars. but the premium came out of it. We'll talk to you again soon, I hope. It's good to see again. Always a pleasure. All right, it's ours. Jim Chanos, thanks so much for being here once again at the Stone Conference. The president is heading to China for that highly anticipated summit with President Xi

and bringing some corporate star power along with him. Megan Cascella joins us now with more on that story. Hi, Megan. Hey, Scott, so we just saw President Trump depart for that trip in the last hour, and he spoke with reporters from the White House on his way out of So a couple of highlights here, the president saying, while he has a lot of things to discuss with President Xi, he wouldn't say that Iran is one of them because, quote, we have Iran very much under control. Trump was also asked whether he'd ask President Xi for help with getting Iran to make a deal.

And Trump said no, he said, quote, I don't think we need any help with Iran. So Scott, showing us a little bit there how the war is likely to dominate the agenda for this summit, even as President Trump would clearly prefer to focus on trade and investment and other things. And as for that CEO's star power, House has shared this list of 16 top executives who will be joining the president as part of the U.S. delegation. Tim Cook, Elon Musk, among the biggest names here, but there's also a range of industries represented from Microna Qualcomm in the chip space to Cargill in the ad-ag industry, plus Blackstone, BlackRock, and Goldman. But you will notice one name not on this list, and that is NVIDIA's Jensen Huang. He said on our air last week, it would have been an honor to travel with

the president to Beijing, and the trip does come as NVIDIA as awaiting approval to sell its H-200 chips in China, it appears though, Scott, he did not get that invite this week. All right. Megan, thank you. That's Megan Cassella with the latest for us. Sports is the next frontier in Mark Lazarie's quest for great investing opportunities. He's the former governor of the Milwaukee Bucks, owns an English soccer team, and has several stakes in other sports-related enterprises. He's the co-founder, chairman, and CEO of Avenue Capital Group, and he is with us following his panel here at Soan. Welcome back. It's good to catch up with you. Thank you. Let's talk about this asset class of sports. And I'm curious as it,

has it performed relative to your expectations when you made such a big move with your first fund in that area? I think it's actually been better. I knew when we started it, we were going to be in the first inning. What I've been surprised at is the amount of capital that has continued to go into this space. And I actually think I've been pleasantly surprise. I think it's great. And I think you're going to see more, you know, pension plans and groups coming in. What is that capital chasing? Like, why is the draw there? I think the draw is people are starting to realize that sports is the only thing that you actually can see live. And as people get more and more nervous about AI, the one thing they're realizing is that people will watch sports.

They'll see it live and they want to be there. Same thing as music. So it's going to be one of the few things that going forward, nobody's going to watch robots play. Nobody's going to do anything like that. Can't be disintermediated by AI. Is that in one respect why valuations can continue to go up as you've got all this money coming into the pool? I think it is because you know that ticket pricing is going up, sponsorship is going up, but more important, media, because it's the one thing that you can't record. Like, you didn't record the Super Bowl and watch it two years later. Like, nobody does. that. Nobody is going to say, I'm going to binge on watching sports. You have to see it in that moment. And that's what media companies need. And that's what they want. You don't feel like we're

getting towards a ceiling in any respect. You know, I was following those reports on the Seattle Seahawks. And the reports were that the process of selling the team from the estate of Paul Allen was a little slower than expected. I'm thinking, well, I mean, if you're talking about $10 billion, aren't you reducing to some degree the pie of people who are eligible, if for no better word, to have interest in to do that? What are your thoughts on that? Look, when I bought the bucks, believe it or not, when I paid $550 million, I paid the most that anybody had ever paid for a basketball team. I know that's hard to believe. That wasn't even that long ago. No, it was 13 years ago. So at the time, every time a team sells, it's always

the most and everybody says the same thing. I think if you look at what's happening, you see that it's just going to continue to grow because the demand for it is outstripping sort of what is available and more and more people are watching. So it's the scarcity aspect of it supersedes everything else. I think it does. That's number one. Number two, what also people have come to realize is you own a fan for life. So if you're a Yankees fan and the Yankees don't play well, you're not changing your mind and saying, okay, I'm going to be a Mets fan or I'm going to be, you know, a Red Sox fan. You stay that fan and that is something that's unique and different. And it's an asset class that people are starting to realize is there to stay. Do you think there's any truth to it if you

look back at what's happening now again with the Seahawks? I had always gone into this saying, Well, of course, it's getting harder for these things to sell at these huge numbers because it's hard to find somebody who can come up with the 30% liquid that you need to put down. And then I was speaking with somebody else this morning who said, no, no, no, you got it backwards. It's getting harder to come up with the 70% because the numbers are so big and you're asking others to put up all of this money for no controlling interest in the team whatsoever. It's the 30% person that has all the say. And that's true. I think with that you're seeing, I also think you're going to see with the Seahawks.

You're going to probably have three or four people who bid for it. Right? It's not one. You know, when we were buying the bucks, you know, Wes and I were the only ones at that moment in time. And today, you're seeing for everything. You saw it for the Celtics. You see for every team there's always more than two or three people.

So, yes, the pricing keeps going up, and I don't disagree with you. I do agree with your point that the 70%, you know, would you put up $7 billion to have no say? You shouldn't. Let me put it to do that. Yeah, well, people of your ilk aren't used to putting up a lot of money without having any say. That's what I'm thinking about. I agree with that.

But there's still a lot of people who are going to put in $100, $200, $500, or a billion. All right. Let's talk about the markets, credit markets. What do you see? Because the stock market's been booming. What about credit? Look, I think all the credit side, what we're seeing, things are slowing down. And what I mean by that is we're able to charge more. So people are nervous. That nervousness is great for us because the economy is still doing well. When you look around the world, yes, there's issues, but you're still got positive GDP. Things are still good. What people are nervous about on the credit side is they want to be able to sell that day. Well, that you can't do. Right. Because they're liquid. It's a liquid. And, you know, people think, oh, well, it's supposed to be liquid. I should be able to get out. Well, no, that's hard. And if you want to get out, you can, but there's a discount to that. And I think that's what people are upset about. You told me the last time you were on, quote, of course you should be concerned when I asked you about what was happening with private credit. Are you the same level of concern today, more or less than a couple of months ago? I think it's the same level. The reason you should be concerned is you invested in something that was ill liquid and today you want liquidity.

Well, that's not the case. Now, are there going to be issues? Yes, there are definitely going to be issues. But you're in a positive GDP environment, but you can't say, hey, I want to get out and I want you to pay me par. You can't say, I want to get out, and we're happy to buy it at 80 cents on the dollar. Because we think it is going to be money good or you're going to get 95 cents. You think you're going to have more opportunities coming up to do what you do?

I think there's going to be a lot more opportunities. You saw it today with the inflation number. As inflation is going up, that means the Fed isn't going to reduce rates. So if you have higher rates, that's going to cause more issues. You better have a GDP that's going to keep on growing. Give us more to talk about. Mark, it's good to see us always. Always good to see you.

Thank you. Mark Lazary here with us at the Stone Conference. We're just getting started here live in New York City. Coming up next, Greenlight Capitals. David Einhorn joins me exclusively. Just got off the main stage after talking about his best ideas. We'll discuss them coming up. And later, Toma Bravo's Orlando Bravo.

He'll join me live to talk about the recent action in the software trade. Don't go anywhere. We're back on the bell in New York City after this. All right, welcome back. Finding the best opportunities on both the long and short side of the stock market has been David Einhorn's forte for the past three decades. He's also been a fixture at Sown from its inception. The Greenlight Capital President joins us now live. It's good to have you back.

It's great to be here. Thanks, Scott. Speaking of having you back, you keep. coming back. And you've been here for, if not all 31 years, certainly the majority of them. Why? I miss the first five. Why is it so important to you? You know, I've always enjoyed it. I enjoy feeling like I can pitch an idea. It forces me to organize my thoughts, figure out what I really want to talk about, enjoying the presentation. I enjoy the cause. The Sone Foundation has just been absolutely amazing. And I feel very lucky to be invited every year. So we just got you offstage,

in which we watched your presentation in which you talked about a handful of stocks. None of them are first reveals, let's say that here. But why did you choose Acadia, Centine, Floor, our parent company, Versant, which you're a new shareholder, which you revealed in your prior letter? It's good to have you on board. And Victoria's Secret. Why those chosen to talk about here? It was a theme within our portfolio, where all five of these companies are companies,

or companies that have sort of underperformed or there's a lot of problem with or thought to be problem, and there's an affirmative plan by the management teams to improve and transform them into something a bit different than what they are today.

So it's five stocks really with a similar theme. Put me inside of your psyche, I guess, when to do what you do, is that a central theme that drives you as a stock picker? You're looking for dislocated situations, things that you feel are underappreciated and undervalued in an industry, by the way, as you've talked about in the past, in terms of value

investing, is all but gone away. Yes. And we're looking for misunderstood. So where we can have a difference of opinion from what we consider most other people's opinion to be. So in your April letter to investors, you said that you were, quote, putting capital preservation at the top of our priorities. And you wrote the following. With so little downside priced in, we're willing to risk missing out on a possible recovery to position ourselves to play more offense, should one of the downside scenarios materialize? I mean, is that you saying that you think this market's wildly overvalued? Well, I have thought the market is very highly valued for a few years, honestly. And certainly, playing defense over the last six weeks has not been the best position,

and we have not really participated in the V-shaped like recovery that has happened. I think the market as a whole, though, when you look at it on any sort of history, historical measure. It's very, very pricey. And sooner or later, I think we'll wind up with a better opportunity. You've spent several pages, by the way, of that letter talking about the war and oil prices, the president's negotiating strategy. It was pretty clear that you thought when the war broke out and oil spike, that the stock market was going to have a much bigger decline. And it hasn't. Why do you think that is? Well, actually, I thought I tried to explain in the letter why it didn't. And the reason is, is investors have been so conditioned over the last number of years that every decline is always met

with a rapid and aggressive response by the authorities. And you wind up with sort of a checkmaker, B-shaped recovery. And so people are conditioned to not sell when things seem troubled. So if you sold during COVID, that turned out not to be a great thing. If you sold to 2022 or 2023, those were not such great things. If you sold over the tariffs last year, that turned out not to be great thing. And so people were inclined to make those kinds of sales. They're mostly not managing money anymore.

And so people who are remaining in the business, they're very anxious to not sell into panics or negative news. And so when the war came, the market fell much less than one would have thought. If you said, gee, oil's going to do this and this is what's going to happen geopolitically in the world. And so far, that seems to be working yet again. It seems to be the case because investors seem to be focused on the bigger picture, if you will. The fact that earnings are much stronger than people thought they would be, that the economy appears to be hanging in there.

And even the labor market by virtue of the most recent jobs report seems to be better than a lot of people had expected. Are you saying that are people wrong to focus away from the spike in oil, the fact that inflation is still elevated and focus on earnings, which have been historically amazing? Well, some of the earnings have been more historically amazing than others. There's been a big boom in like semiconductors, right? And it's a really weird dynamic because you have like the price of a DRAM goes up a lot. So Micron makes a lot more money. And you'd think for a minute, well, who bears the burden of that cost?

Well, it's the people buying from Micron. And that's like meta. Apple and Apple and people like that. And those stocks aren't going down. And the reason I think is because when they're buying that DRAM at the higher price to build their AI data centers or whatever, that doesn't hit their P&L anytime soon. They amortize that cost over many years. So you have a thing where no economics has been created.

Micron makes extra money. Meta or Amazon spends more money. So it's just a transfer from one to the other. And yet right now, both talks go up. So how does that work into the context of how you think about what's happened with the AI trade? I mean, there was a period of time. Yeah. Well, you know, you start.

It's so much irrelevant to us. You heard the types of stocks we're involved with today in the presentation. and none of them are sensitive to this kind of a dynamic. Sure, but I'm thinking about, you know, there was a time where you were writing about a bubble basket, right, within the market. And I'm thinking of myself, like, Einhorn must be looking at this market right now

and assembling a bubble dump truck to fill. Are you doing that? We don't really talk about our individual shorts, but I'll even say the bubble basket, we got out of about four or five years ago now, and I don't have a bubble basket or anything resembling that in the portfolio. Do you feel like this period of time, time is any way like the late 90s? How would you assess that? I actually think it's a little bit more

like maybe like 2007 in the sense that you can see some underpinnings that are facing real problems. I mean, gas prices are going up. The retail data that is beginning to come down is showing softening at retail. You're seeing a mix towards people spending their money on gas and spending less money on other things. It takes a little while for the supply chain impacts of like the higher energy prices to filter through into things. And I think there are already beginning to see some signs of some real slowing that's coming. It just didn't happen the day they closed the straight. It just takes a while sort of to pass through. And I think you're beginning to see some of that. You said a while ago, and maybe this sort of plays into that, that you had expectations that the Fed was

going to, a Warsh-led Fed was going to cut more dramatically, cut rates more dramatically than the market had expected. We feel like we're in a different dynamic. I think that's, I think in the near term, that's fair. I mean, those comments came before the war started. 100%. And so oil was at a completely different price and the inflation dynamic in the near term is completely different. So we had a high inflation reading this morning, certainly on a headline basis. And I think it's going to be hard for the Fed to lower interest rates while inflation is 4% or something very close to 4%. I do think that over time, Kevin Warsh is going to have more of a dove issue than Powell has had. And when he has the opportunity, if we get a peace outcome or we get lower oil prices and stuff like that,

I think those kind of cuts will be yet to come. What's your take on gold? Gold has kind of had a huge run for a couple of years, and I think it's kind of just taking a break from things, and people are paying attention to other things. I think gold needs to kind of take its time and establish this level for a while. The longer-term story for gold remains very much intact. Our fiscal situation is non-solvable.

Our monetary policy is very aggressive. We're not the only ones. All of the major currencies are run essentially the same way. And ultimately, you still have a de-dollarization. You have a loss potentially of the petro dollar coming out. You have the elimination of the dollar as the World Reserve currency as a possibility over the next few years. I think as that happens, it's ultimately going to be good for gold. Okay, so you still like it.

It still has a place in your portfolio. It's less than it was, but I still do like it. Okay. 30 years of Greenlight, which is a hard milestone to get to in this business, harder than I think people would realize. And you've had a lot of ups. You've had some downs and you find yourself here. What do you think led you to 30?

I mean, how did you get to 30 years? Which, as I said, is not easy in your business, given the ups, downs, the LPs that you have to answer to. Sure. It's two things. First of all, you get to 30 years one year at a time. and you just pile one step in front of the next and the time kind of passes and the business builds and you get through things.

The other is you have to be very resilient. It's not always going to go your way. Even when we're doing a great job, we're going to be wrong 30% of the time. Like if we get right, 70% and wrong 30%, that's a great year. And a lot of years, we're going to be wrong even more than that because they're not all great years.

And so you're in a business where you're going to be wrong, an awful lot of the time. And if that bothers you and it wipes you out, then you can't make it 30 years. You have to know that the good days are good days and the bad days or bad days and you just got to be resilient. If you had to hang one trade on the wall from those 30 years that you're most proud of, what would it be? I couldn't possibly. Well, you mentioned 07.

I mean, the short Lehman thing. I mean, that's certainly a lot of people think about that. But Brick, Allied. Bid brick I'm very proud of. We started a business for nothing. And in almost every metric, it is the best home building company in the country. I have a phenomenal partner who's been the CEO of that, and we've built this together into just really a wonderful business where there was nothing when we started. A book was written about your allied trade, I believe, wasn't it?

I wrote the book. Yeah. Oh, you wrote the book. I wrote the book. Okay, so that's got to be. Well, that was certainly a memorable trade. I don't know if it was my best one. It did take six years to work.

Well, that's, that's again, your business is so interesting. It's the stictuitiveness that sometimes has to happen for you to realize what you expected for. from way back in the beginning. It's good to spend time with you. Thanks for being here. Thanks for having me. All right, David Einhorn with us here at the Sone Conference. Coming up next, Toma Bravo's Orlando Bravo.

He joins me live right here at Sone. He'll weigh in on the state of software right now and where he sees that group heading from here. We're back right after this. All right, welcome back. Software stocks have been on a major rebound lately following one of the worst periods in recent memory. Our next guest runs the world's largest,

software-focused investment firm with 80 companies in its portfolio and $183 billion in assets under management. Orlando Bravo is founder and managing partner of Toma Bravo and joins us now at his first sewn conference. What drew you to make this part of your day? Helping other investors get the real value and understand the real value of software. Yeah. Well, as we said, you are for the world's largest software investment firm. Do you think the worst is over for that group? Have we bottomed? We're up like four weeks in a row coming into this interview. It's so hard to predict the markets, but I really think so. I mean, these software stocks, many of them are great leaders. They're in an excellent position for this

AI wave, and they're pretty cheap. So I do think we're pretty close to a bottom. You must think, though, that there are some stocks that are down a lot that deserve to be down because they have a greater probability of being disintermediated by AI. No? 100%. So, you know, everybody's asking me who the winners and losers are going to be. There's a big debate about that. And people point to, well, if you're a system of record, if you have the data, if you

have this mode, so people are trying to sleep at night a little better, those are great attributes. There's nothing against that. But what makes certain companies very special comes down to one thing. Leadership. We're going through a new platform change. software is about automating corporate functions. Think about this whole history.

We've been automating more and more from the ERP days, then came cloud and we used that infrastructure to really, really automate corporate functions. Now with AI, you can automate human judgment. And remember, AI is run by software and AI is managed by software. So this wave is going to be so much greater than software has ever seen.

And when you have the right leaders running these companies, they'll put it in a new platform and run through this, through this wave effectively. The so-called SaaSpocalypse gets a lot of conversation. You had a conversation a few weeks ago in an event and said you're still bullish on SaaS, as long as those companies have the ability to leverage AI. You said the following, quote, there are the most incredible buying opportunities right now in the market.

You just have to know what you're looking at and what you're buying. So I'd ask you, how do you know what you're assessing within the SaaS universe is going to thrive with AI or be killed by it? I tell you the three things we look at. And the first two, we've done it for 25 years. That's how we got into the industry during the dot-com bubble burst when it was really scary, by the way. The first one is domain expertise, deep domain expertise. We don't look for companies that are all about their product or their technology. That's an important point in time for these companies.

but if you really know a domain very, very well, you have a big competitive advantage about how things get done in that area. The second thing, and I mentioned that, is leadership. Do you have a domain leader, a CEO, who has spent 25, 30 years in that industry, knowing how to automate customer problems and knowing how to work in that ecosystem?

And now the third one is, you need to see that company and that leadership team moving to this new platform. You need to see a percentage of bookings being agentic. You need to see a level of innovation, like you've never seen before. I'm wondering of the 80 portfolio companies that you have, some of which you've owned for a while

before we were talking about AI every minute of every day, whether you've had to rethink some of the companies within your own portfolio because they may be disintermediated in a way that you wouldn't have thought of four or five years ago. You know what I call it? So we've had to rethink everything. We are in an environment that I call hypercompetition.

Now software has always been extremely, competitive, and we like competition. I think investors during the SaaS times got a little bit confused that software with recurring revenue was easy. You could underwrite that over a long period of time. They said it and forget it almost. Platforms change. You need to sell the new deal. You need to provide value to the customer. And there were some periods of time that have been easier for software. This one, the opportunity is enormous, but the competition is enormous. So we have had to go through each company, the managing partners, not outsourcing that, we're on. on Slack from 9 p.m. to midnight with the CEO of our companies working with them and seeing

what's going on. You are now. 100%. And what I've seen during the last six months from our portfolio and from other competitors has been unbelievable. I call it software rising to the occasion of taking advantage of this new infrastructure. Did we think that moats existed for businesses that no longer may exist? I mean, at some point, moats can be breached. And then the castle can be invaded. And I feel like we're at one of those moments where we saw and thought that businesses had moats around them, but in fact may not have been as strong or as deep, so to speak, as we once thought. Look, we own the whole company. So we deal with our problems every day. If your heads of sale quits, if you miss a product cycle, if a product is late, if you're having

customer care issues in your company, moats were always overstated. actually for this business. You have to always be producing the best product and taking care of that customer in an excellent way because the expectations from these customers are so high. The ROI expectations from buying software to automate and now AI software to automate are so unbelievably high that you have to put it all out there.

And if you take your eye off the ball, you'll suffer. Are you out there aggressively looking for software companies that you think are a great bargain that have been absolutely destroyed and you are picking through things and saying that's a great opportunity for us? Big time. If you look at the time that I spend on my partners, it's moving our companies to become AI-centric. And in the last six months, I think we're like 30 to 40 percent there.

That's how quickly this is moving. I've never seen this rate of innovation, once again, from our portfolio, but also from our competitors. I think they're also doing a great job. The second one is looking to buy some great assets with great management. just nobody right now at these prices is really willing to sell or entertaining. Do we talk about your competitors?

You're talking about like the Vista Equity groups, for example? I'm talking about the competitors of our software companies. Of your software companies. Because, I mean, the way that Robert Smith has talked about it, obviously in the same business and a very well thought of and smart software investor too is the ability to agentify the businesses that they have in their portfolio to, in some respects, AI proof them to make sure that they are the,

kinds of companies that would be able to grow into the future rather than be killed by it. The way we think about it is our companies are in the business of automating the tasks of a corporation. We could have companies that run the entire corporation in a vertical, a company that runs a function like day force in HR and payroll, or a company that runs a process like Anna Planning Planning. We own the number one player in many of these spaces. Those number one players go way beyond putting agents in their solutions. They will become AI companies, because once again, they will take automation to now automating human judgment. So if you take one of those companies, they were automating saying 5% of a function, 10% now they can move to automate

50% of a given function. And that right there is transformative, and that's the huge opportunity. What about the exit? I mean, the exit strategy has got to be a little more difficult. You've got to convince somebody they're going to pay a lower multiple for a software business because of what's happened, right? So the exit is always hard, especially since we own larger companies. Right? To exit our company, somebody has to come up with $20 billion, $30 billion. Over time, as we continue to grow those earnings and improve accelerated growth through AI,

there'll be plenty of buyers for these companies. Now, at this time, today, it is hard to see. see that. It is really hard, but you have to, you can't think about just the present time. You just have to keep adding earnings and growth to these companies, and it'll come. Well, the best investors have had a knack of doing that, of which you are definitely in that group. I appreciate the time today. Thank you. Thanks so much. That's Orlando Bravo, joining us right here at the Stone Conference. Coming up, Trivariates, Adam Parker, he is standing by to break down these final moments of this trading day. We're back on the bell afternoon. We're now in the closing bell market zone,

CNBC contributor, Adam Parker of Trivariate is with me here live at the Sone Conference in New York to break down these crucial moments of the trading day. It's good to have you here. Thanks for having me. So in the here and now, this market, we've been at record highs. We're taking a little bit of a breather today as we assess the situation in the Middle East. What are investors supposed to think about the market at these levels? The biggest challenge that's coming up in all of my meetings is, if I want to get defensive, what do I even do? It used to be years ago, you could say,

oh, I know what to do. I buy, you know, maybe some staples, telcos, pharma, they're big stocks. I can move some capital over. Today, the defensive stuff is way smaller than the single goal offensive stuff, so it's not even balanced.

And then two, they're missing. So the worst thing is, you know, you hit the iron to be safe and you hook that out of bounds. Like, you don't want to buy a defensive stock that misses. So I think people are really trying to figure out, A, do I want to time and get defensive now? Nothing's going to, tell me there's no signal from the DRAM market I'm supposed to sell it yet. So people are struggling

with what signal and then if I want to get defensive what to do. And I don't think it's the same playbook as history where I just buy some staples. I think you've got to be a little bit more thoughtful about, you know, how to get defensive. I mean, do you just buy what's been going up? I mean, that's the greatest challenge for investors in a market like this. Totally. I think the play is, it's still semis over software for me, but I think you have to shift a little bit within semis. It's hard to look at the DRAM ETF taking in $6.6 billion in six weeks and think it's not at least two-thirds over or three-quarters over. So I think you're selling a little bit more of the stuff that's ripped than trying to find maybe a little more, you know, sort of stable growth.

Look, when I look at the market and I see Micron and I see Caterpillar, one's at 30 times earnings, ones at six or seven depending on next year's views. So the market's- micron being at the six or seven depending on next year's views. Yeah, right, 100-100. As we were talking about with Jim Chanos earlier on today. Right. So the question is, is Micron over earning by so much, but Katz are unearning that those are priced right? Or is the truth in between, right? What do you think with something?

I think near term you stay long. I don't think you get a negative signal on the semis. So I think you're selling some industry and trying to find stuff that's not correlated. Maybe it's health care services. Maybe it's waste. Maybe it's aggregates. Something that's not just the same trade. because everyone I know who's long only benchmarked against the S&P

is just loaded to the gills with AI semi-exposure in some way. Do you think the risk reward has gotten better in software? No, because I don't think valuation is the way to pick software stocks. I want to buy the expensive ones anyway, so I don't look at it like, oh, Salesforce is cheap, so therefore the risk of the word is better. I look at it, well, the ones that are cheap have a prior probability of being disrupted. So when somebody says to me, Adam, I think the market is not trading on fundamentals,

My new retort the last couple weeks is, how do you know? Maybe it's trading on 20, 30 fundamentals. It's assigning some probability of outcomes and earnings, and it's kind of right. Right. We all know individuals who are idiots, but the market itself, an aggregate is smart. But, you know, to your point of, well, how do you know is why when someone says this is the late 90s all over again and someone's questioning whether these stocks are trading fully on fundamentals, like the ones back then were turned out they weren't? Right. Right. How do we know what's happening? happening now with an analog back to then that this is going to be like that was. Yeah, it's, it's always hard, but I take Micron. I think we talked about it last week for a second,

which is I remember Micron earned a buck 25 and one quarter. I remember somebody saying annualized that, it's five bucks. I'll pay 20 times it's $100 stock. Well, now Micron's going to earn $100 next year. So it's clearly a different, you know, kind of valuation if you, in terms of what people were signing to next couple years earning. So I don't think it's anywhere near is extreme. I think the question is if cumulative capbacks on data center is going to be two to three times of spending, how are you going to call them, what could go wrong? And I think it's either going to be financing power. Something goes wrong with a proofcase where a big company comes back and says, wait a minute, we made a mistake here and we've got to now run things in parallel.

Let's pump the brakes on the rollout. Something big is going to happen to derail the trade. And then the interim tech earnings are growing so fast that it's hard not to be overweight tech in an SEP portfolio. I mean, that thing that might happen might not be for a year or two down the road. You just don't know. That's why these things can go on for much longer. It's why an irrational exuberance claim

by Greenspan in 96 can go on until 2000. Shilworm got famous in part. He's obviously famous from many things, but he published his book in March of 2000. What doesn't get talked about is he started writing it in 92. Right?

You're going to get fired if you short tech from 92 to 10. 99 right so i think it's all timing and everyone i know is trying to think god i'm up if i'm doing well they're like i'm nervous i'm doing so well but they're sort of thinking i'd rather catch another 40% and deal with the 20% downside i'm still up then sell it too early and get run over and then buy defensive stuff that's missing anyway like what do you want to do by Kimberly clark and then it misses because input costs are up and every commodity's up so that's really the struggle is it's just not that easy to get defensive so everyone's trying to find derivative plays to the to instead of you know

mainlining the memory. Yeah, well, not when you think this runway can go on for even longer. It's hard to get off the train. It's been good having you here. Yeah, great to see. Adam, thanks for spending time with us here at the IRIS zone conference. Bells are going to ring. Again, it's a little bit of a pullback for stocks. We'll see you on the other side. I'll send it in overtime.