Why Nvidia and other ‘picks and shovels’ of tech will stay solid bets, say these veteran investors
Critical information for the U.S. trading day
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Kneel to your king Wall Street.
After forecasting record revenue backed by a “killer AI app,” Nvidia has teed up the Nasdaq (COMP) for a powerful Thursday open. Indeed, thanks to that chip maker and a few other generals — Microsoft, Apple, Alphabet, etc.— tech is seemingly unstoppable:
S&P DOW JONES INDICES
Elsewhere, the Dow (DJIA) is looking rattled by a Fitch warning over debt wranglings ahead of a long weekend.
But our call of the day is accentuating the positive with some valuable insight on tech investing amid AI mania from a pair of seasoned investors.
Inge Heydorn, partner on the GP Bullhound Global Technology Fund and portfolio manager Jenny Hardy, advise choosing companies carefully given high valuations in some parts of tech that could make earnings vulnerable.
“But looking slightly beyond the volatility, tech has the advantage of being driven by many long-term secular themes which will continue to play out despite a weaker macro,” Hardy told MarketWatch in follow-up comments to an interview with the pair last week. GP Bullhound invests in leading global tech companies, with more than $1 billion in assets under management.
“We try to make sure we’re exposed to these areas that will be more resilient. AI is the perfect example of that –- none of Microsoft, Amazon or Google will risk falling behind in the AI race -– they will all keep spending, and that will continue to drive earnings for the semiconductor companies that go into these servers higher,” said Hardy, who has worked in the investment industry since 2011.
“The way that we think about investing around [AI] is in the building blocks, the picks and shovels infrastructure, which for us is really the semiconductor companies that go into the training servers and the inference servers,” she said.
Nvidia (NVDA), Advanced Micro Devices (AMD), Taiwan Semiconductor (TSM)(TW:2330), Infineon (XE:IFX), Cisco (CSCO), NXP (NXPI), Microsoft (MSFT), ServiceNow (NOW) and Palo Alto (PANW) are all in their portfolio. They also like the semiconductor capital equipment industry — AI beneficiaries and tailwinds from increasingly localized supply chains — with companies including KLA (KLAC), Lam Research (LRCX), ASML (ASML) and Applied Materials (AMAT).
As Hardy points out, “lots of big tech has given us lots of certainty as it relates to AI, lots of certainty as it relates to the amount they are going to spend on AI.”
Enter Nvidia’s results, which Hardy said are proof the “AI spend race has begun…Nvidia’s call featured an impressive roster of companies deploying AI with Nvidia – AT&T, Amgen, ServiceNow – the message was that this technology adoption is widespread and really a new normal.” She said they see benefits spreading across the AI value chain — CPU providers, networking infrastructure players, memory and semicap equipment makers.
Heydorn, who traded technology stocks since 1994 and also runs a hedge fund with Hardy, says there are two big tech trends currently — “AI across the board and power semiconductors driven by EV cars and green energy projects.”
But GP Bullhound steers clear of EV makers like Tesla (TSLA), where they see a lot of competition, notably from China. “Ultimately, they will need semiconductors and the semiconductors crucially are able to keep that pricing power in a way that the vehicle companies are not able to do because of the differences in competition,” she said.
Are the tech duo nervous about anything? “The macro economy is clearly the largest risk and further bank or real-estate problems,” said Heydorn, as Hardy adds that they are watching for second-order impacts on tech.
“One example would be enterprise software businesses with high exposure to financial services, which given those latest problems in that sector, might see a re-prioritization of spend away from new software implementations,” she said.
In the near term, Heydorn says investors should watch out for May sales numbers and any AI mentions from Taiwan via TSMC, mobile chip group MediaTek (TW:2454) and Apple (AAPL) supplier Foxxconn (TW:2354) that may help with guidance for the
second half of the year. “The main numbers in Taiwan will tell us where we are in inventories. They’re going to tell us if the 3-nanonmeters, that’s a new processor that’s going into Apple iPhones, are ready for production,” he said.
JPMorgan says this is how much revenue other companies will get from AI this year
Nasdaq-100 futures (NQ00) are up 1.8% , S&P 500 (ES00) futures are up 0.6%, but those for the Dow (YM00) are slipping on debt-ceiling jitters. The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) is up 4 basis points to 3.75%.
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Fitch put U.S. credit ratings on ‘ratings watch negative’ due to DC “brinkmanship” as the debt-ceiling deadline nears. House Speaker Kevin McCarthy told investors not to worry as an agreement will be reached.
Best Buy (BBY), Dollar Tree (DLTR) and Ralph Lauren (RL) are reporting, followed by Ulta (ULTA), Costco (COST) and Autodesk (ADSK) after the close.
Nvidia is up 25% in premarket and headed toward a rare $1 trillion valuation after saying revenue would bust a previous record by 30% late Wednesday.
Nvidia CFO says ‘The inflection point of AI is here’
But AI upstart UiPath (PATH) is down 8% after soft second-quarter revenue guidance, while software group Snowflake (SNOW) is off 14% on an outlook cut, while cloud-platform group Nutanix (NTNX) is rallying on a better outlook.
Elf Beauty (ELF) is up 12% on upbeat results from the cosmetic group, with Guess (GES) up 5% as losses slimmed, sales rose. American Eagle (AEO) slid on a sales decline forecast. Red Robin Gourmet Burgers (RRGB) is up 5% on the restaurant chain’s upbeat forecast.
Revised first-quarter GDP is due at 8:30 a.m., alongside weekly jobless claims, with pending-home sales at 10 a.m. Richmond Fed President Tom Barkin will speak at 9:50 a.m., followed by Boston Fed President Susan Collins.
A Twitter Spaces discussion between presidential candidate Florida Gov. Ron DeSantis and Elon Musk was plagued by glitches.
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