Nvidia (NVDA) is preparing a 10-for-1 stock split after the market closes on Friday, a move that comes as the chip giant's market cap surpasses $3 trillion. Jeremy Schwartz, global CIO at WisdomTree, appears on Market Domination to discuss the AI race and what investors should expect from the stock split.
“We're big believers in the AI story, and we think the technology can really help the economy,” said Schwartz, who believes that as the technology continues to develop, companies in all sectors will be able to more broadly tap into and benefit from AI.
While many fear an AI bubble, he explains, tech company valuations aren't at the levels they were in 2000. Tech is still more expensive than other sectors, but revenues are growing at a much faster pace, he notes.
For more expert insights and the latest market trends, click here to watch this entire episode of Market Domination.
This post was written by Melanie Leal
Video Transcript
Investors are on edge with major stock indexes, which were little changed in today's trading ahead of Friday's monthly employment report, adding to the weakness. Enthusiasm for Nvidia's $3 trillion market cap faded a bit, with shares down around 2% with an hour to go in trading.
Now we're joined by Jeremy Schwartz, Global Chief Investment Officer at WisdomTree.
We are delighted that you have joined.
There's plenty of news to analyse tomorrow, including the ECB decision and key labour reports.
But investors want to know about AI, and there will be a big, unfair stock split tomorrow.
Let's tackle that first.
What do you think?
You know, we are big believers in the AI story.
We believe technology can really help the economy.
I think we are still in the early stages of seeing the effects of this begin to filter through to the economy.
So that's going to have a big impact on interest rates and productivity, but we'll have to look at what that means.
Well, we are believers.
Now, the real question is, who will be the sole winner?
You know, the biggest winners are coming from these big companies investing in chips, and as you've said repeatedly, chips are absolutely key today.
Yes, but we think there will be broader participation and more companies will benefit.
Looking ahead, I would say we're going to see an expansion of the bull market, but we believe in technology and we don't believe we're in a 2000-style bubble.
I hear a lot of people are worried about ratings.
Well, we don't think they're at the 2000 level.
In fact, the price of technology overall has fallen to about half what it was in 2000, and we believe it is much more affordable now than it was back then.
Um, so can you explain in a bit more detail why you think it's not a bubble?
Well, there were nine stocks at the time with triple digit PEs, some of the biggest SP500 stocks had PE ratios in the hundreds, Cisco had a PE ratio in the hundreds, NVIDIA is expensive but still around 40x next year earnings.
So if you were at a level like Cisco in 2000, you'd be pretty high right now. So the S&P overall, the S&P technology sector, was at 60 times forward earnings in the '60s and is at 30 times forward earnings today.
So yes, they are more expensive than non-tech companies, which are 17-18 times earnings and tech companies are 30 times earnings, but tech companies are growing earnings twice as fast.
As you know, projected revenue is growing twice as fast.
This means that over the long term, technology companies' revenue growth over the next three to five years is expected to be more than double that of non-tech companies.
So multiple premiums are guaranteed.
If they can achieve those gains, if their gains really slow down, then obviously there will be some correction there.
