Title: We've likely greatly overpriced the AI trade, says Cole Smead
Show: CNBC Squawk Box (Andrew Ross Sorkin) — Thanksgiving-week segment
Guest: Cole Smead — CEO & portfolio manager, Smead Capital Management
Date: 2025-11-26
URL: https://youtu.be/9t-Y-PxOfnY
Length: 5:46
Note: CNBC caption transcript (all-caps source, as pasted); (mm:ss) cues verbatim. Garbles: "LRY PAGE"=Larry Page, "MALL RATES"=mall REITs, "ASSURANT OF THE CURVE AT THREE"=a short end of the curve at three (%), "PHORIA"=euphoria.

(00:01) FUTURES. RIGHT NOW. WE DO HAVE SOME GREEN ON THE SCREEN. ABOUT 80 POINTS ON THE DOW. IF WE OPENED UP RIGHT NOW WE'VE GOT 22 POINTS ON THE S&P 500. THE NASDAQ LOOKING TO OPEN ABOUT 115 POINTS HIGHER. JOINING US RIGHT NOW COLE SMEAD CEO AND PORTFOLIO MANAGER SMEAD CAPITAL MANAGEMENT. THIS IS TYPICALLY A LIGHT VOLUME DAY AHEAD OF THE HOLIDAYS COLE.
(00:19) BUT EVERYBODY IS STILL A LITTLE AI CRAZY. AND I IMAGINE THERE'S GOING TO BE A LOT OF CONVERSATIONS ABOUT THE MAG-7 AND NVIDIA AND STOCKS LIKE THAT, AND MAYBE A LITTLE BITCOIN OVER THE THANKSGIVING DAY DINNER TABLE TOMORROW. WHERE DO YOU LAND ON WHERE WE REALLY ARE? >> YEAH. HAPPY THANKSGIVING WEEK. SO, ANDREW, TO YOUR POINT. I THINK A LOT ABOUT THE SAM ALTMAN INTERVIEW FROM A FEW WEEKS AGO WITH SATYA.
(00:46) I THINK THAT WAS REALLY KIND OF A TIPPING OF THE SCALE IN A WAY. AND EVER SINCE THEN, THINGS HAVE JUST BEEN DIFFERENT IN MARKETS AND FELT DIFFERENT. YOU WERE MENTIONING ANDY GROVE EARLIER, ANDY GROVE'S BEST BUSINESS ADVICE HE EVER GOT, HE SAID, WAS FROM A CITY COLLEGE PROFESSOR OF HIS. HE SAID THAT, WHO SAID IF EVERYONE KNOWS THAT SOMETHING IS SO, NOBODY KNOWS NOTHING. OKAY.
(01:10) AND I SAY THAT BECAUSE I THINK WHAT EVERYONE KNOWS IS THAT WE'RE GOING TO USE AI. AND THE PROBLEM IS THEY DON'T KNOW THE COST AND THEY DON'T KNOW THE FUTURE PRICING. SO I THINK A LOT ABOUT LIKE THE PARADIGM OF THE OIL BUSINESS THAT WE SAW IN THE 20 TENS, THERE WAS TONS OF INVESTMENT. IT WAS VERY EXCITING. WALL STREET COULD SELL IT.
(01:28) AND THE ONLY PROBLEM WAS THE PRICE. AS WE CAN SEE TODAY AT $57 A BARREL ON WTI, WAS THE UNKNOWN. AND THE HISTORY OF TECHNOLOGY IS THAT THE PARADIGM ARGUES THAT CHEAPER PRICES COME. I THINK, OF WHAT A COMPUTER WOULD HAVE BEEN BOUGHT IN 2000 OR INTERNET, HIGH SPEED INTERNET, YOU KNOW, BEYOND 56 K AT THAT POINT.
(01:47) AND SO I JUST SAY THAT BECAUSE I THINK THE MARKET'S TRYING TO SWALLOW THAT AND UNDERSTAND THAT THE LIKELIHOOD IS WE'VE GREATLY OVERPRICED THIS. >> SO IF WE'VE GREATLY OVERPRICED THIS, WHAT DO YOU DO. ARE YOU NOT ARE YOU NOT OWNING THESE STOCKS. AND BY THE WAY, IF YOU DON'T OWN THESE STOCKS, I'M NOT SURE WHAT STOCKS TO OWN BECAUSE I ASSUME THAT THAT IT'S LIKE A DOMINO EFFECT.
(02:07) IF THESE STOCKS COME DOWN MATERIALLY IN PRICE. >> WELL, I MEAN, TO YOUR POINT, IT WOULD BE LIKE NOT OWNING RCA IN 1929 OR SOMETHING ALONG THOSE LINES. HERE'S WHAT'S INTERESTING. LET'S JUST SAY WE GO BACK TO THE PRIOR TECHNOLOGY, TELECOM, YOU KNOW, CAPEX BOOM. LET'S SAY WE GO BACK TO THAT POINT AND SAY, OKAY, WHO WERE THE PLAYERS? YOU HAD LUCENT, YOU HAD WORLDCOM, YOU HAD NORTEL, YOU HAD GLOBAL CROSSING.
(02:29) AND THEN WE KNOW WHO SURVIVED, RIGHT? IN MANY WAYS, WE HAVE THE CABLE COMPANIES. BUT AT&T AND VERIZON WERE BIG SURVIVORS OUT OF THAT ERA. AND I THINK THE ONLY PROBLEM WE DRAW OUT OF IT IS AT&T AND VERIZON SINCE 2000, HAS PRODUCED 5% COMPOUNDED FOR 25 YEARS. SO ONE OF THE ARGUMENTS BEING MADE TO YOUR POINT IS THAT, OH, NO, THERE'S GOING TO BE 1 OR 2 THAT KIND OF TAKE UP ALL THE DEMAND, WINNER TAKES ALL FORMAT, ETC.
(02:54) AND HISTORY ARGUES THAT EVEN THEY MAKE MID-SINGLE DIGIT RETURNS. IF WE GO TO THE OIL BUSINESS AND KIND OF USE THAT SAME PARADIGM. ANDREW, AGAIN, YOU'RE GOING TO FIND MID-SINGLE DIGIT RETURNS SINCE THE PEAK IN 2000. DO YOU PUT. >> AMAZON IN THAT LIST THEN AMAZON WOULD HAVE BEEN WAS THAT AMAZON OBVIOUSLY WAS BORN IN THE 90S. AND LOOK AT IT NOW.
(03:11) >> THAT THEY DIDN'T BUILD THE INFRASTRUCTURE. GOOGLE ANDREW. SO SO THINK ABOUT IT LIKE THIS I WAS WATCHING ERIC SCHMIDT SPEAK HERE IN PHOENIX LAST WEEK. AND THINK OF YOUR IF YOU'RE IF YOU'RE SERGEY BRIN AND LRY PAGE, YOU'RE SITTING THERE AT STANFORD IN OH TWO AND YOU'RE HAVING A CUP OF COFFEE AND YOU'RE LIKE, ISN'T THIS INCREDIBLE? WE CAN RUN OUR ALGORITHM ON DIGITAL SEARCH IN A WAY THAT'S NOVEL FOR ITS TIME.
(03:33) AND THE GREAT PART IS THEY DIDN'T HAVE TO DO THE CAPEX TO BUILD THE INTERNET. THAT'S THE BIG DIFFERENCE. YOU DON'T WANT TO OWN THE PEOPLE THAT DO CAPEX, BECAUSE THE WINNERS WILL BE THE PEOPLE THAT DIDN'T GET  AT A MUCH CHEAPER PRICE, MUCH LIKE THE CONSUMER DID WITH THE INTERNET OR THE CONSUMER DID WITH OIL, OR THE COMPANIES THAT BENEFITED OFF ALL THOSE PHENOMENONS.
(03:51) THAT'S THE BIG CATCH. THE MARKET'S PRICING UP. THE IDEA THAT THE SPENDERS ON CAPEX ARE THE WINNERS. HISTORY ARGUES DIRECTLY AGAINST THAT TIME AND TIME AGAIN. BUT WE HAVE TO KILL THIS FEVER. AND LIKE I SAID, SO FAR, IT SEEMS LIKE SAM'S INTERVIEW WITH SATYA HAS QUELLED A LITTLE BIT OF THE FEVER. THE QUESTION IS, YOU KNOW, TO YOUR POINT, HOW SWIFTLY DOES THAT FEVER GET DEALT WITH? >> OKAY, SO THEN, ASSUMING YOU'RE RIGHT, WHO DO YOU LIKE IN THIS? IN THIS NEW UNIVERSE? AND WHO WOULD YOU NOT TOUCH AT THIS MOMENT? >> IT'S A GREAT QUESTION. AND
(04:22) BY THE WAY, I'M ASSUMING I'M RIGHT TOO. FOR BETTER OR FOR WORSE. SO SO TO YOUR POINT, IF YOU GO BACK AND LOOK AT THOSE PRIOR ERAS, YOU COULDN'T OWN MUCH AROUND IT. I MEAN, SO JUST USE THE OIL THING. FOR EXAMPLE, ANDREW, IT DIDN'T MATTER WHETHER YOU OWNED THE PRODUCERS, IT DIDN'T MATTER WHETHER YOU OWNED THE SERVICERS.
(04:40) EVEN THE INDUSTRIALS IN MANY WAYS GOT CAUGHT UP IN THAT GAME AND THAT PHORIA, IF YOU LOOK AT THE TELECOM BUST, YOUR POINT. IT WASN'T JUST THE SPENDERS THAT GOT CAUGHT UP IN IT. IT WAS THE DOT COMS AND IT WAS THE SOFTWARE COMPANIES ETC. SO, YOU KNOW, YOU HAVE TO LOOK WEIRD RIGHT NOW, I THINK TO MAKE GOOD LONG TERM EQUITY RETURNS.
(04:57) RIGHT NOW YOU HAVE TO LOOK PRETTY WEIRD. YOU HAVE TO GO TO CORNERS OF THE MARKET THAT ARE JUST TOTALLY UNDERAPPRECIATED. SO, FOR EXAMPLE, WHAT'S INTERESTING TO ME, YOU WERE TALKING ABOUT FED POLICY A LITTLE BIT, AND WE'RE GOING TO SEE LOWER RATES ON THE SHORT END OF THE CURVE. AND YOU CAN SEE A LOT OF CREDIT SENSITIVE PARTS OF THE STOCK MARKET THAT PEOPLE DON'T NECESSARILY WANT TO TOUCH, EVEN THOUGH THINGS ARE GETTING BETTER.
(05:18) SO YOU CAN FIND LIKE WE OWN MALL RATES, THEY'RE TRADING FOR IMPLIED CAP RATES OF LIKE, YOU KNOW, 7 TO 8%. IN SOME CASES. WE'RE GOING TO SEE ASSURANT OF THE CURVE AT THREE IN THE NOT TOO DISTANT FUTURE BECAUSE TRUMP WANTS IT THERE. AND AS WE'VE SEEN WITH OIL, IF HE WANTS IT, HE'S PROBABLY GOING TO TAKE IT THERE. THERE'S THINGS LIKE THAT THAT THERE'S REAL VALUE IN.
(05:36) BUT TO YOUR POINT, ANDREW, TO BE A BROADLY DIVERSIFIED TRILLION DOLLAR INSTITUTION, YOU CAN'T DO THAT STUFF. SO I THINK THE SMALL INVESTOR HAS A BIG EDGE. AND I SAY SMALL SMALLER INSTITUTIONS, SMALLER INVESTORS. IT IS NOT A GREAT TIME TO BE A BIG