June 20, 2024

David Dietze, managing principal and senior investment strategist of Peapack Private Wealth Management, spoke with Quartz for the latest installment of our “Smart Investing” video series.

Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.

ANDY MILLS (AM): It’s been a big week for AI companies. Nvidia and AMD released chips earlier this week. Now Intel has a new chip out. Who are going to be the big winners and losers in this space?

DAVID DIETZE (DD): I think the market’s saying right now Nvidia is the team to beat. Of course they’ve got a new generation coming out which is gonna handle all the needs for these various AI companies. You know, the question is how long will it take for other companies to catch up with them? Because when you look at the margins that Nvidia has, you know, 60, 70, 80% margins, they have a big target on their back. So all these companies around the world are saying, whatever Nvidia is doing, we wanna have some. And so the question is how long they can maintain that lead. Certainly Qualcomm is a player and who knows what the Chinese have, but certainly they’re not gonna want to be left behind in the dust either.

AM: You mentioned margins. Do you think Nvidia’s competitors are going to eat away at their market share by lowering prices?

DD: Longer term? Absolutely. But I do think that with the Hopewell and the Bracewell these various generations of chips, Nvidia has, they first have to have the same product before they can start underpricing it. I mean, so for example, you know you’re not gonna undercut Cadillac if you’re offering people a Volkswagen. And so I think that is your problem and that’s why Nvidia has, they say, a 12 to 24 month lead in terms of development of chips that others simply can’t offer the market and that’s why they can get away with charging whatever the market will bear.

AM: Are you a buyer of Nvidia?

DD: The answer is no. I don’t own it at Peapack where I work. We have Nvidia shares, but we don’t have a full market weighting. The problem, of course, is valuations and hype and so forth. And having done this game for long enough, sometimes what seems to be so obvious is not your best investment choice. In fact, there was a great article in the Wall Street Journal the other day, ‘Are we at peak AI?’, in terms of the market where everyone is so convinced that it’s the only way to go in town, that stock prices may have already priced that in. Now, will AI change things? Yeah, but that always takes much longer than you think to play out. And that’s why we’re actually looking for some of the picks and shovels for the AI revolution. So for example, Dell computers come along quite nicely. Now do they make AI chips like Nvidia? No, but they’re going to be designing laptops and other ancillary equipment which people are gonna have to buy in order to take advantage of the chips inside from Nvidia. So that’s an example of a derivative play that we think could make a lot of sense.

AM: So maybe Dell?

DD: Yeah, Dell has done quite well. But now we’re looking at, for example Hewlett Packard, which also makes computers, too. We should still be trading about eight or nine times earnings. If you remember, Dell was a bargain at eight or nine times earnings. Now it’s about 25 times earnings. And in fact, although they hit all their targets in their recent earnings, their outlook was just a little less than the so-called ‘whisper outlook’ was on the street and the stock fell back sharply. So one always needs to be careful how much you’re paying.

AM: When I think about Hewlett Packard and even Dell, I think about printers. So to hear them in a conversation alongside Nvidia and AI chips is really interesting for me.

DD: Yeah, absolutely. I mean, yeah, I can remember Gateway when I got my first laptop. But, so all these companies are reinventing themselves. The challenge as investors is to say, we’ve got a theme here. We’ve got AI, it’s going to increase productivity by 10, 20, a hundred fold, but from an investment point of view, what’s already been priced in and what is gonna be in the next stage and try and catch that next stage because as we’ve seen, what Nvidia has done it, it has priced an awful lot in.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *