Tematica Research CIO Chris Versace and JP Morgan Asset Management Global Market Strategist Meera Pandit discuss how the surge in AI speculation is impacting the overall market.
video transcript
Brad Smith: This morning, Alphabet hit a $1.5 trillion market cap for the first time in over a year. The AI hype is fueling tech giants. And Alphabet’s stock is up 35% this year after a dismal 2022, joining Microsoft, Meta, and Amazon, which have enjoyed double-digit profits this year. So is this rally all AI hype? Have you ever
Chris Versace: So I go–
Brad Smith: — Should it benefit?
Chris Versace: So I’ll use one of my favorite words: hopium. I think there are a lot of things like that out there. Because when you look at the end market, like in the case of Microsoft, the data center, ok, it doesn’t necessarily have to shine, the PCs will continue to be used. Take a look at some of NVIDIA’s other end markets, for example. What’s the common denominator here? It’s all about what you just said, AI.
And what bothers me a little bit about this is that companies like PepsiCo and Wendy’s are starting to talk about how they’re going to use AI and how it’s actually going to change their business. is to be And suddenly, from 1999 he flashes back to the dotcom era of 2000. At the time, companies of all kinds were in a situation where they weren’t company X anymore. We are x.com company. And it’s as if I’m in the game too. I have to say something.
Brad Smith: Apple’s case was actually different. Because Apple did not voluntarily raise this issue. It was brought up in a question to them.
Chris Versace: yes. That’s 100% correct.
Julie Hyman: For Apple, it makes more sense than that–
Brad Smith: To do.It makes a lot more sense than —
Julie Hyman: –Coke or Pepsi–
Brad Smith: –Wendy’s.
Julie Hyman: –A place like a random bolt-on, for example.
Chris Versace: Well, but when you think about your iPhone, you’re the carrier. We already carry AI with us every day. So I’m a little worried that this is overkill. As you know, when something new comes out in terms of technology, the expectations are high and the company’s stock price can go up significantly. So the question for me is what happens in that potential bubble. That’s what I’m looking at.
Julie Hyman: I would like to ask you about a specific one of the names you have given, Meera, because I know you are speaking in a broader sense. But I want to hear about NVIDIA, because this is the stock price that doubled.
Chris Versace: yes.
Julie Hyman: – this year. It hasn’t even reported earnings yet. It’s decided, for what–
Chris Versace: next week.
Julie Hyman: ――One week from today.
Chris Versace: next week. next week.
Julie Hyman: So is this — the AI is really built into the fabric of what the Nvidia chip does and what you want it to do. Does it make sense for a company like this to be so profitable, or is it going too far?
Chris Versace: What I mean is that it’s reflected in their bottom line, and they’re probably perfectly priced. So, not only do they perform, they need to win and pull up if the stock price is to go higher.
Brad Smith: On the subject of AI, if an investor were to set up their portfolio or get in touch with AI in any way right now, Mark Zuckerberg would actually do his best, from what I’ve heard mentioned during earnings season. I think You explain that it’s applications that run on language models that run on chips, but perhaps there’s a strong thematic play that’s currently emerging as a subset of AI?
Meera Pandit: I think it is necessary not to put the cart before the horse here. Because I think there are some different headwinds from an AI perspective when you bring in the macro story. Because when you think about what AI needs, AI will need things like: Now that profits are declining, businesses need to be more precise with their spending, so they’re cutting budgets a bit to stay profitable. So it’s a bit of a headwind in terms of how much additional spending is possible towards this in the short term.
I also want to say that I think many of these technologies will actually require more workers up front, even if they save labor in the end. So given the position of the workers, the labor shortages, the very specific training that may be required, given the supply of workers and the short-term ability of firms to capitalize, there are some headwinds. I think there is. .
Julie Hyman: Sorry to interrupt Meera, but as you speak, companies are also running the risk of over-resourcing AI because of the hype and investor pressure sacrificing their core business. I thought there might be. ?
Meera Pandit: That’s the risk.
Julie Hyman: yes.
Meera Pandit: We don’t want companies playing in too many sandboxes at the same time. So I think now is the time when companies really need to focus. And businesses have been making some tough decisions over the past year or so, successfully focusing on wage pressures, cost pressures and a strong dollar. I don’t think company managers should lose their discipline in the face of the latest shiny objects.
Now, long term, from your point of view, I think this is a big theme that will play out over the years. But you may have to be a little patient. Once again, let’s think about some of the assistive technologies needed, the input needed over time to drive this theme forward. But I suspect that the massive uptick in the market due solely to enthusiasm for AI is a bit over the top.
Brad Smith: Chris, I saw you leaning over and trying to jump onto the table.
Chris Versace: yes. Well, what I meant to say is we need to differentiate between actual spending and investment in this compared to companies talking about this issue. Because in this environment, looking back over the past few weeks, Microsoft stock has skyrocketed. , and Google–a Google stock of sorts really lagged behind until recently, but especially at the I/O event they got serious about how they’re incorporating AI into other areas, not just Bard. spoke to and said: Hi, we are in this game. Again, looking at this as a model, companies that don’t talk much about it, oh, maybe they’re behind, and they don’t want that. will have.
Brad Smith: Are we underestimating what the AI regulatory framework looks like today?
Chris Versace: My suspicion is yes.
Brad Smith: yes.
Julie Hyman: Well, at the same time, if there’s a company that’s at risk of not talking about it, which is, it’s lagging behind, is that an opportunity for investors? In other words, just because companies aren’t talking about it doesn’t mean they aren’t doing it. It doesn’t make sense–you know what I mean?
Chris Versace: yes. yes. yes. Well, consider your opinion of Apple, or Brad’s opinion of Apple. they are doing it. they are investing in it. But they aren’t necessarily talking about it. I think what I can say is for traders, not for investors.
Julie Hyman: Gotcha. It’s an important distinction to always make.
Brad Smith: I’m glad that you two are here today. We welcome Chris Versace, Chief Investment Officer of Tematica Research, and Meera Pandit, his Global Markets Strategist at JP Morgan Asset Management. Nice to meet you, as always. Thank you very much for your time this morning.
Chris Versace: Thank you.
