AI stocks like Nvidia and Microsoft are nowhere near a bubble

Two things in markets have held true in 2024. One, the stock market opens and closes at the same time each day. And two, investors — large and small — love the AI trade. What’s not to like about companies at the leading edge of this exciting technology? Companies such as Nvidia (NVDA) are unable to keep pace with demand for their products, driving higher prices and profits. Even a legacy player like Intel (INTC) is getting in big to all things AI. The stock prices of AI-centric names have remained virtually bulletproof as investors await the next big upward lift to guidance. But really, how long can this all last — especially in front of a pivotal presidential election?

On this episode of Opening Bid, Yahoo Finance Executive Editor Brian Sozzi goes on the search for the next hot tech stock trade with EMJ Capital founder Eric Jackson. Is Nvidia the best place to stay in terms of AI? Or should investors warm back up to Apple (AAPL) ahead of the debut of its Apple Intelligence suite? Jackson and Sozzi discuss these top Wall Street tech trades and many others in this high-octane episode.

Video Transcript

Welcome to a new episode of opening bid.

I’m Yahoo, finance executive editor Brian Sazi.

Now let’s make some money and hopefully get a lot smarter here with me.

Now is a special guest EMJ capital founder and President Eric Jackson.

Eric, good to see you Yahoo Finance.

OG.

Welcome back.

It’s the fold after many, many years.

Great to see you, Brian.

Yeah, likewise.

So uh look, I’ve been following your tech work for um eons.

Um We may both look young.

We’ve been doing this for a while.

So let’s start on the uh the A I bubble.

Uh It’s a term that gets tossed out there a lot but is it a bubble?

And how would you even quantify a tech bubble?

I don’t think it is a bubble.

I think it’s a, it’s basically one com company dominating now with NVIDIA.

And I would argue and we can get into this later that they are actually not even uh valued in a bubble licious way at the moment, given their future expectations and where they might be going.

So if you kind of set them aside like point to me all the companies these like, so called like dozens of.com, you know, IP OS that, that we saw back in the day, like in 9 98 99 point me to the, you know, 200 X pe multiples where these public companies are trading at, even in the private markets.

I mean, II I just don’t see it.

I don’t, I don’t see that evidence.

So there’s a lot of excitement for sure.

I think the excitement is justified.

I think there’s a lot of investment that’s going on right now.

And we’re ST we’re, we’re getting to the point in the story where people are sort of saying, oh, well, you know, we’ve been investing for 18 months now since Chat GP T came out.

Story continues

And so like, where’s the evidence that this is really um helping companies?

Where’s the revenue?

Um And with the exception of maybe like meta, which has obviously juiced its, its, its revenue and earnings by the big investment that they’ve made in the, in the NVIDIA chips.

We haven’t seen it elsewhere.

And so therefore people are saying therefore it’s a bubble.

Therefore in India, uh you know, NVIDIA, you know, there’s been two double triple orders.

This thing is about to crash and all in space.

But you know, I, I just don’t agree.

Iii I just think uh there’s a longer time rising playing out here and the markets are being much more rational in how they’re pricing companies today.

Relative to.com, I purposely buried your NVIDIA analysis and all my questions at the end, Eric.

So people will listen to this because I know you’ve been really talking about NVIDIA.

So it’s a little uh I’m not trying to trigger anyone.

I just want to say like the real awesome stuff to the end.

Um But OK, so it’s not a bubble.

I hear you.

But are you seeing signs of overvaluation?

I look at uh what about a week ago?

We got a downgrade on, on service now.

Uh and the play on service now.

Great company, Bill mcdermott, uh top executive, but the play on service now about a month ago.

A I play big A I build out.

They’re a winner but the downgrade, I think it was Guggenheim suggested something otherwise, I mean, do you think more of those downgrades are coming because the stocks have come talk too far, too fast and that A I profit realization may not be coming uh so quickly.

Well, I, I like service now.

I, I think it’s, it, it hasn’t gotten the Pixie Dust.

Uh I don’t think sprinkled on it, in fact, in some ways, um you know, the, the, the repricing that we’ve seen in big uh SAS names like Adobe Service now, uh Sales force this uh just in the past quarter.

I think it’s, I think that that’s been a result of uh cio s reallocating budget this year away from, you know, upgrades to whatever the current S a system is that they’re using in favor of, of putting dollars towards, uh, investing in A I, so I don’t, I don’t see that and when I look around at other companies that are so, you know, so called A I, companies like Aller.

Yeah, they’ve had a great run off of their, like maybe December 2022 lows.

Uh, and I’m sure there’s some A I hype mixed in there but I don’t find like the the valuations like a pe basis like overly stretched.

So uh you know, back in the day, like Cisco was, I think it got up to uh co two, you know, had a slide recently and like some investor presentation they did where I think they, they maxed out like 100 and 50 times forward pe totally normal.

I mean, and, and, and there was just, and, you know, we saw revenue less companies IP O like we just, we just don’t see that today.

I don’t know, you know, point point me to the, to these bubbles A I companies.

I, I wanna see them.

Well, let me just, I’ll let me ask you this then.

Uh Do you think we will see it because of how promising the technology is if we’re not in a bubble today?

Do you think we are about to enter one because of the promise in this technology and what it might mean to profits cash flow, you name it for these companies, I think that’s possible for sure.

I, I think like, I think we’re at the state, there’s like a famous graph, like where the investor expectations, like, you know, get really hyped up initially.

And then there’s like the, the, the, the dep uh where like we uh the trough of disillusionment or something like that.

I think uh you know, people refer to it as and then, and then eventually, like, there’s, there’s a rebound on the other side where people say, oh, well, you know, like this thing really, you know, I guess mobile phones are, you know, here to stay and, you know, and, and people, like, you sort of get on board again and, and I think we’re probably sort of coming down the slope into the trough of disillusionment where I think there’s a lot of, I, I think, I think a lot of people want to see NVIDIA fall flat on its face because they, they missed it and they, they want to be proven right that it didn’t work out.

And I think there’s a possibility like, again, like that because so many people are, are investing in trying to build their own A I models and we haven’t yet seen kind of the them hit pay dirt with, you know, some new magical application for service now or for whoever that’s making that investment uh on the scale of a, like a chat GP P that I think people are kind of ready to say, oh, it’s not working and therefore NVIDIA is overvalued or company X is overvalued.

Uh, so I think that’s a risk.

Uh, but, but I, you know, I, I saw an interview with the, um, I think it was the anthropic, uh, CEO recently where he was saying, you know, hey, you know, we’re definitely betting the company on this and, you know, people might think like, you know, we, I don’t see the evidence.

It’s, it’s like we planted the seeds in the ground and like yelling at the farmer that I don’t see evidence yet of the corn crops, you know, and, and so the, this anthropic guy was saying, like we believe the, the corn is gonna come up, you know, you just gotta give us a few points and uh you know, and if we’re right, you know, we’re gonna harvest the crop and if not, you know, we, we, we’re not gonna eat this winter type of thing was, it was a sort of answer and iii I side with him.

Uh You see it.

Uh You’ve been doing this for a while, Eric, you’ve seen it, you’re, you’re actively looking through decks, uh financial presentations or these call transcripts, you name it.

How do you in this envi time type of environment when everyone is so excited?

How do you just spot bullshit?

Uh You’re, you’re, you’re watching a deck, you see something and you’re like, I, I don’t know how they’re gonna make money on A I, because I, I’m, what I’m trying to do here is I, I would like to protect investors who, who are hearing a lot of hype out there.

Um, and getting excited about this and thinking profits go up on a straight line for these tech companies.

But I mean, you and I both know that’s not the case.

No.

And, um, you know, in my own firm, um like I, I run a tech focused hedge fund and, you know, we’ve been building A I models to help us with the stock selection and, you know, portfolio management uh process and you sort of think like it’s gonna be relatively straightforward, you collect a lot of data, you know, throw it into an A I uh algorithm and, you know, great investment results are gonna come out on the other side and, and it’s just, it’s just, it’s not that simple and it, it is complex.

Uh It’s not, you know, you, you go down a lot of blind alleys and stuff like that and I think, I think the same is gonna be true um for a lot of other companies that are making these kinds of investments.

So in terms of the, you, you know, being mindful of protecting, you know, investors, I think, I think investors should just expect that.

Um you know, when you hear big promises like that, um you know, some com company is about to like, just flip the switch and see its revenues, you know, double or triple, you know, in a short period of time.

I think that’s probably unlikely.

I, I, you know, NVIDIA has been a public company for, I think, 24 years, 25 years.

So they’re not, they’re not going anywhere, they’re not going anywhere.

Well, yeah.

And, and it was a 24 year overnight success.

Right.

And so, like, now they’re in the Catbird seat selling their chips, but it took a lot of investment and stuff.

So I just think that um yeah, the, the revolution will come with A I but um just because somebody comes on and, and says, you know, this, this company is the greatest thing since sliced bread and they’re, they’re gonna kill it in A I, I mean, you just, you know, I, I think you just need to be uh it, it, you’re right to kind of keep your bulls bullshit detector on and just do some research and not get, not just jump in with both.

The, how do you, how do you even go upon building a model to find great A I companies?

I, we don’t have time to, I think actually go really in depth into your process.

But like what are some of the variables that, that you’re putting in there right now?

Well, I’m, I’m trying to look for the best tech investments.

Uh Not necessarily like there, there’s, there’s only so many public companies that are a, I, you know, uh companies.

Uh and, and so I think it’s a bigger, it’s a bigger set if I, if I, if I look at just tech, at tech companies, uh but, you know, there’s, and obviously there’s all like the technical factors that you hear people come on air and talk about, oh, it’s above the 50 day moving average, you know, it’s, it’s volume was this, it’s, you know, it broke, it’s all time highs on that.

I mean, there’s literally hundreds of those kinds of technical features and then for each of the, of those features, like you can take the second or third of those like the rate of change of, you know, uh how much it’s sort of exceeding its prior all time high and all this kind of stuff.

Then there’s obviously fundamental factors like that.

You can look all the balance sheet, income statement type stuff you can look at, there’s um, short interest, there’s insider stock transactions and, um, you can really like start, you know, um choking on, on, on, you know, drinking the, the fire hose of information there.

And so to, to really kind of, you know, parse it out and find out, um, you know, which factors matter when and which factors matter to which companies often like, there’s a big difference between what drives a, you know, a mega cap, you know, mag seven type of stock versus, you know, a midcap uh uh like a Carvana type of stock, you know, it, it can be very different.

And um, so it, you, uh that’s where a I helps because for a human mind like to keep all those variables, you know, straight in your head and, and, you know, weight them differently for different size companies or different, you know, at different stages of their life cycle.

It’s, it’s really difficult so machines can help a lot.

I think A I is gonna help a lot now, you know, that’s a complex task.

You know, now multiply that across all industries, you know, and you get a sense of how powerful this, this stuff can be.

But again, it’s not gonna happen overnight.

It’s gonna take, why do I think I’m, I’m gonna get a bill from you, Eric for that, for that model creation in real time.

I mean, i it’s my email, Brian dot sa at Yahoo finds.com.

I mean, we’re all, we’re all friends here, hang with us.

Uh hang with us, Eric.

We’re gonna go for a quick break.

We’ll be right back.

All right, Eric.

Uh we’re talking to all things.

A I let’s talk some individual stocks here and I have to push aside my natural inclination to ask you about Apple because I think you and I were talking about Apple like a decade ago.

So let me brush that to the side for a second.

Do you view Tesla as an A I company.

I think that’s a fair argument.

Iii I, I’m not, uh, um, I, I don’t own it at the moment.

I missed the recent kind of run up.

It’s up for 10, it’s, it’s up for, what, 10 straight days, 80% from the April lows.

I, I look to me, my read was, you know, initially, I mean, they make cars but the move in the stock would suggest maybe they are that A I play well, I, I think, I think the really interesting models are obviously a function of compute power behind it.

And that’s why all these like hyper scalar are like spending billions and billions to buy as many chips as they can get from Jensen Times.

Uh The data and Tesla has millions and millions of, of miles driven uh as data that’s going into their FSD and with their latest update, you’re, you’re really seeing um not just a handful of, of stories but, you know, uh quite a bit of, of folks who are remarking how, how much of a step, step wise improvement it is over prior versions.

And uh it’s kind of, it kind of reminds me of like the way that chat GP t all of a sudden just emerged as, as amazing kind of overnight.

And yet, like, you probably remember, I don’t, I don’t know how many years I heard about companies investing in big data, you know, and like all this stuff and then like, you’re like, what do they have to show what, what, what happened with that?

You know, what, what do they have, what does anybody have to show for all that, those investments and stuff?

And then all of a sudden, like, magically this, you know, we, we got chat G BT.

So I, I think Tesla’s got a lot of data.

It’s interesting, like, you know, Elon took a lot of arrows in the back for buying Twitter, Twitter obviously brings a lot of data.

I don’t know if it’s $40 billion worth of data.

Uh But you know, he, he clearly sees um the importance of that as A, as a co-founder of open A I.

So, so II I definitely do think that they are uh an A I play, you know, the, the results in their last quarter um about energy.

We’re also kind of very eye popping and uh I saw a note out just this morning from Adam Jonas talking about how Tesla energy is it worth more than the Tesla, the car company, you know, and the, and the A I kind of component to, to energy storage.

So um it’s, it’s, it’s uh yeah, I should definitely put it, put in the A IC, you think, do you think their technology at the point where in our lifetime, I, we are looking at Tesla Robo Taxis and I bring this up August 8th event.

Uh You know, I was talking to Bradley Tusk.

Um, he’s worked with Elon Musk um before and he doesn’t see them.

Of course, he’s an early backer in Uber, but he doesn’t see, you know, Tesla crushing Uber, but there is a potential there for, for Robo taxis.

I mean, is there technology that advanced from an A I perspective that, I mean, we are finally near that point where maybe I’m just gonna ditch my car and, and call a Robo taxi from Tesla.

I mean, we’re gonna find out, uh you know, we’ll have a lot better idea after the 88 event.

Uh I do think that it’s, you know, like the, the comments I was just making about Fs D’s improvement.

Uh Obviously that’s gonna be a big part of it.

Uh And you hear, you hear a lot of uh rave reviews that like, I don’t even have to do anything.

I don’t have to intervene anymore.

Like I used to on most of my rides.

It sort of sounds like you’re in a Robo taxi.

I also think it’s interesting that Elon um followed Travis Kalanick um like maybe a week or two ago.

Uh And you, and you say sort of like, well, you know, what’s the importance of that?

I, I, the guy doesn’t follow, you know, like I, I don’t know, II I see that as significant.

Like we, we’ll find out there’s some people have already started to speculate that Travis is gonna be announced at the 88 event as the head of Robotaxis, I think that would be phenomenal for Tesla stock.

Uh, if that was the case, uh, and Travis was gonna come into the company and play a big role.

Um, but we’ll see.

But I, you know, he might, that might not, might not be.

But, uh, the fact that there’s that relationship, at least, uh, where Lan’s following him on, on a, uh, don’t forget about that.

Yeah, I was just thinking, uh, Elon does not follow me.

Uh, but you know who does follow me?

Eric Dwayne the Rock Johnson, which is pretty cool.

He started following me a couple of years ago.

I mean, we all have, I mean, you have to have a celebrity follower, don’t you?

Besides me?

Uh, I don’t have to rock.

Um, so you, you got me there, Brian?

Um, I mean, I, I have, I have some, I have some celebrity, uh, like finance people.

Oh, that’s cool.

No, that’s in our, in our sphere that, that’s actually speaking of, uh, X, like, what’s, what’s his end game?

I, I remember you following Twitter when they are a public company.

Is this an IP O at some point?

You think it is IP OS and, and gets through it, or he’s just the owner of X for the next couple decades.

Loves the data, loves the attention, wants full control of it.

I think he loves the data.

I think he loves like the um the um political uh importance that it brings to him.

Um you know, which probably can’t be understated.

Um But I, at the end of the day Elon is a capitalist and so I, I would be shocked if, if this was not an IP O at some point, I mean, it’s, it’s clearly like the, there’s this Rock A I play, uh you know, maybe he merges it into Xa I or something like that the way he seems to do with, you know, his, all of his company kind of fold in together at some point.

Um So I think there’s a, I, I’m sure he’s, he’s got a financial plan at the end of the day.

It’s uh I, I was thinking just the other day it still is amazes me that here we are still tweeting away or whatever he calls it, posting on it.

And um uh they fired 80% of the workforce.

Like, what were, what were those people doing?

Like, it’s just amazing to me.

Yeah.

And it makes you wonder like how many other companies in big tech, you know, could, could do that size.

R Yeah, they’re probably uh they’re, they’re applying over at NVIDIA which brings us to uh one of our final topics here.

Uh Your call uh on NVIDIA, sir.

I, I saw some posts out there on XL.

You were calling for or are calling, you think a uh $6 trillion market cap for NVIDIA is possible.

Yeah, possible this year.

And so this is, yeah, by the end of the year and here here’s my, hold on, hold on, hold on, hold on a second.

So wait, NVIDIA is a $3.2 trillion company and you see, you see six trillion by end of the year, I I could see this thing hitting up, you know, between 202 50 per share by the end of this year.

Uh And so the reason the reason is that um in the last five years, if you go back and look at what, you know how the forward price earnings multiple has, has varied for NVIDIA over that five year period.

Uh You know, it, it and this is true for most stocks like you, you go through these like ups and downs constantly where there’s this like euphoric reaction to maybe they have this like incredible earnings report and suddenly like this, the company becomes very expensive on a go forward multiple basis.

And then they have like a more humdrum earnings report and suddenly they, you know, those forward multiples drop dramatically.

And despite the fact that obviously the stock price for NVIDIA has like just been ripping for over a year now since like May of 2023.

And it’s, I don’t know, it tripled last year and I think it’s doubled this year.

Um The forward multiple has actually been below the me for most of that move.

Uh, in other words, like on a go forward basis, it’s almost like Wall Street has, I thought this was gonna be like, kind of like, ok, they had another good quarter, but in that, it’s gonna slow down significantly from here and we’re gonna kind of go back to, you know, uh, you know, very low levels that and in terms of like how they were pricing this thing, they just were not.

And, and yet, like over that five year period, there have been three times where the forward multiple has gotten up to like, uh, there was one time, it was like 55 times forward earnings.

One, it was like 63 times uh forward earnings when it peaked out.

And there was one time where it almost got to 70 times uh forward earnings.

Uh, and then it kind of quickly receded most of most of the last year, this thing has been like one standard deviation below the mean on a go forward basis.

And just right now, this thing is about 39 times forward earnings, 40 times, which puts it right at the mean.

So my belief is that, you know, we’re now kind of going up again with NVIDIA and I, it would not surprise me, uh, to, uh, that we see another, uh strong earnings report this fall from that, that would be a seismic event.

I, I’ve, I mean, adding $3 trillion in market cap inside of a year.

It’s, it’s a whole other company like three other three or four other companies.

So, I mean, do you see, like, is it the next earnings report?

Is that that seismic shock?

I mean, where orders just really, almost like we saw last year they came out and they blew everything away, re reset, guidance up and just change.

Everybody’s thinking on the name.

Well, step away from the, the market, the dollars of market cap that, that are being added and just think of it from percentage terms like last year, NVIDIA basically tripled, like I said, this year, it’s doubled and I’m talk, I’m saying like it could double again between now and the end of the year.

And so it’s either gonna be at the August earning their next earnings is in August.

And then the one after that I think, uh, is November.

Uh, so, you know, I, I, I’m not sure, but I think definitely, you know, we’ll, we’ll see evidence in the August report of initial appetite for the Blackwell Chips and we know that those things are priced higher than the H one hundreds H two hundreds.

Um, so it might be then, or, or, you know, but, but certainly by November we’ll have evidence of like the real operating results and we’ll find out if some of these bears on NVIDIA who are saying like, oh, well, people have just been double triple ordering and it’s gonna come back to earth is right?

Or, uh, we’re gonna find out that well, there still insatiable demand for these chips and this thing isn’t gonna let up real soon.

And the margins on Blackwell are even like, better than what, you know, what they’ve been delivering for the last year, which has already like blown our socks off.

And so I think again, like, I don’t know if it’s gonna be August, I don’t know if it’s gonna be November, but I think there is gonna be this euphoric reaction and if it, so it goes back to, uh, 65 X forward earnings.

You’re there, you’re, you’re there at like 250 per share.

Well, now, uh, I was excited about Nvidia’s next earnings report.

Now, I’m really, really, really excited.

We’re gonna have to leave it there.

Uh, really, uh, EMJ capital founder and President Eric Jackson.

Good to see you.

Welcome back to Yahoo Finance and expect another call from us, uh, right after that video report because we’re having you back on Eric.

Really good to see you and we’ll talk to you soon.

Appreciate it.

Thanks Brian.

All right.

And that’s it for the latest episode of opening bid.