Investors were hoping that Nvidia (NVDA) earnings would provide a big boost to the market, but the Dow Jones Industrial Average (^DJI) suffered its biggest drop in over a year before recovering slightly Friday morning. Michael Nell, senior portfolio manager at UBS Asset Management, appears on Morning Brief to discuss how the hype around Nvidia and other chip stocks could affect the overall market.
Nel argues that while NVIDIA is a “leader” in AI processing, many others are “following.” For example, AMD (AMD) and Intel (INTC) are urging customers to move away from CUDA, NVIDIA's proprietary computing platform, to open or third-party interfaces, Nel said.
Nel added that the hype around AI is mostly about “use cases,” or theoretical applications. While the AI boom isn't as hyped as the dot com bubble, Nel recommended that investors focus on areas where AI has “already proven itself,” such as social media ad targeting and search.
For more expert insights and the latest market trends, click here to listen to this entire episode of Morning Brief.
This article was written by Gabriel Roy
Video Transcript
good.
Stocks started the day higher following yesterday's decline, and the Dow Jones Industrial Average is on track to rebound after its worst day in more than a year.
But still, we are heading for a loss of a week.
And if you look at the Nasdaq today, the Nasdaq is up just 4/10ths of a percent, positive, so let's take a look at NVIDIA, which has been one of the big drivers of tech action over the last few months.
A few quarters.
It's about flat today, but I'll point out that NVIDIA closed up about 9% yesterday.
In fact, this was one of the only Mag 7 names to finish in green yesterday.
Let's talk about what this means in a broader macro perspective.
That's why we want to bring in Mike Knell.
He's Mike, a senior portfolio manager at UBS Asset Management.
Glad to have you here, talk to me about how you view this move, this excitement that's happening at NVIDIA around these chip names, and what it means for the broader market.
Well, NVIDIA is clearly the leader in I processing.
They have a technology called GP U Graphics Processing Unit, which over time has evolved into an AI Processing Unit.
They then specialized those chips with instructions and functions, making them leaders in their fields.
It also has a software interface called CA that allows the chip to be easily programmed.
Well, in the case of these AI applications and other applications that are so-called highly parallel and accountable.
The great thing is that NVIDIA's revenue growth has been phenomenal and its profit growth even more impressive.
And, um, but when you have such a lucrative market, there's a lot of competition.
It's like hitting the bullseye for all the competitors.
And many others, including MD, are following their lead.
Um, and, um, we've also owned stocks that back chips.
But things like memory chips, you need a lot of memory bandwidth to run these chips.
And that was another theme that worked pretty well.
We are warm and always talk about the moat.
How deep and how strong is NVIDIA's moat?
Even in the face of the competition in the AI space that you mention, depending on who you ask, if you ask NVIDIA, they seem to think that AI is an impenetrable, solid ship.
Yeah, and I think that's very solid.
However, after talking to Intel and MD, it turns out there is a way around the COA interface.
Well, an open third-party interface is in the works.
Um, that's, um, they support it.
And they are doing everything they can to help their customers migrate their software from CU A to these open platforms.
Hmm, that will take some time.
In the meantime, NVIDIA will be doing quite a bit.
I think so.
I'd say it was a pretty amazing run.
Are we still just in the early stages of this excitement around the I?
And when we talk about real-world applications, how much of this hype and excitement has to do with what's happening now and what's likely to happen in the next few years?
I think it's based on a lot of things already happening.
I often hear people talking about so-called use cases rather than about applications of I.
And a use case is a more theoretical application.
There are some things that have not proven to be in demand right now, but may develop over time.
So much of it is speculation.
Everyone is afraid of being left behind.
So it's all coming from the companies.
Even governments are buying these chips to equip the country with AI capabilities.
And, um, a lot of it is based on speculation.
But at this point, it doesn't seem as exaggerated as the Internet bubble.
I started my career as an analyst in 1998.
So I went through that and, well, it was different.
Well, the evaluations during that period were really, really, really harsh.
I don't think that's the case this time.
This had a massive impact on many businesses who were trying to jump on the .com bandwagon.
Well, we see the same thing in the field of AI.
I think so. Well, you know, there's a funny story about in 1999 when a company announced they had Internet capabilities and their Chicago stock prices skyrocketed.
You'll probably see some examples where you use I, but in hindsight, it might not make much sense.
Uh, but, uh, it feels like everyone's in there.
Well, we believe the best area to focus your investments is what we call the “pick and shovel area.”
That means semiconductor companies like NVIDIA.
Yes, but there are applications that actually exist today.
I mean, social media, ad targeting, search, etc?
These are areas where I have already proven myself.
Mike Nell, Senior Portfolio Manager, UBS Asset Management.
Mike, thank you for coming into the studio.
thank you.
