Investing in the future of AI: Tech investor Paul Meeks on the five 'Magnificent 7' stocks he likes

And a partner at Wall Street beats. I don’t know of anyone that doesn’t see the long term promise I guess Paul and AI. But there are some smart investors that that do think thinking about Stan Druckenmiller the other day who did at least sell some of his NVIDIA, he he bought other AI sauce. But do you think we’re in a a period here where it it might not be the perfect time to buy maybe we’ll get cheaper prices down the road. Well, some of these stocks particularly the infrastructure builders like NVIDIA, you know when I call the picks and shovels of the AI gold rush, you know some of them have come a long way. However, you know NVIDIA is our front man. So let’s talk about that. The stock has risen several fold, but so have the earnings and the earnings forecasts extraordinarily growth. If you take a look at NVIDIA, it has a fiscal year that’s not a calendar year, but if you take a look at calendar 25, you know the stocks traded about 2728 times earnings. That’s not egregious for its growth profile. So what I try to do, Joe, is I separate the companies and the AI space that I believe in, which are the infrastructure plays because I think that’ll be the dominant theme for a couple years longer than people think. And then I am not in at all on the end product, which will be the AI product companies. I will have to believe that when I see it because they’re sure all these products will be ubiquitous. However, will they be money makers? I don’t know where they really move the financials of said companies. I don’t know. So even though it sounds like a boring uncreative way to look at AI, I’m sticking with the infrastructure place and NVIDIA of course is near the top of my list. Do you think there there’s parallels with the way the the Internet played out back in the 90s, Paul And and you think about it like I was thinking about you could theoretically be buying, I don’t know Caterpillar because they have this AI not, you know drug company pick pick whatever you want. You can not only pick the company developing the tools to do the AI and then the AI itself, but you could pick major companies like we did with the Internet that benefited from B to B or or whatever it was the Internet did for them. So this could be, you could look at the entire, the entire Russell 2000 to try to figure out who to buy that AI is going to help. Excellent question, Joe. We were both around during that period. You know, back then I ran all the tech money for Merrill and when the Internet bubble popped, you know, I still have the lashes on my back to prove it. So I learned a lot of lessons. Yeah, I’m very cautious because coming out of the AI boom, you will have some absolute superstars. Now, some of them are established companies, some are companies that we don’t even know yet. But most of them, yes, they’re going to lever the product. Yes, they’ll see some productivity enhancements. Yes, they will see some cost efficiencies. But will it drive their top line? I don’t know. So I actually think it’s going to be not the 8020 rule. It’s going to be the 9010 rule where, yeah, 10% heroes, 90% no go. The Magnificent 7. There are preeminent tech companies. Which ones do you think win here in terms of either utilizing AI, developing AI, Which ones are in the best position? I say the the ones that are in the best position are Microsoft, Alphabet, Amazon, Meta down the road. But of course, right now NVIDIA, I am not playing Apple, not playing Tesla. OK. So five out of so you you got five out of seven, so I don’t you might as well you know you could be wrong, you might as well buy them all I guess. But obviously we wouldn’t be calling them Magnificent 7 if they hadn’t moved so much already. Yeah. No, I I actually think again that valuations are not unreasonable. We don’t have valuations yet, Joe, that kind of match some of the lofty ratios that we had in the full inflation of the Internet bubble. So yes, I think they’re going to go higher, but I try to be very careful and rifle shoot rather than shotgun shoot and for a long time I’ve been off Apple and of course Apple is one of America’s and the world’s most popular companies and I’ve been short for with Tesla for quite a while. Is there anything in the the macro backdrop that that do you concern yourself with that you’re talking about earnings doubling obviously the you’re not talking about multiples but I don’t know if you’re counting on any any cuts that would help obviously the NASDAQ, I don’t know which administration would be friendly, no one knows exactly how that would play out in terms of regulations and antitrust in in November. But what do you, what do you think of of either of those two issues? Yeah, very, very important. We talk a lot about AI and other fundamental drivers. But of course, the biggest driver for tech and other aggressive growth stocks is the discount factor in the discounted cash flow calculation, which is essentially the level of rates today. And so yes, if we continue to fret about inflation, we can’t get it down to the 2% handle and maybe we don’t lower rates for quite some time, maybe God forbid we crank them up again. Look what happened to tech stocks in October of last year when the yield on the risk free rate, the 10 year treasury note very briefly got to 5% that caused an absolutely blood bloodletting and of course tech stocks rebounded pretty quickly. But yes, that is the biggest scare and of course, we started this year, Joe, with the belief that we’re going to have 567 cuts now we may not have won. And so, yes, that is very big. And on the regulatory side, yeah, there’s a new found aggressiveness. Take a look at TikTok, We’re going to go to the US Supreme Court with a First Amendment free speech case and we’ll probably at some point repeal or adjust section 2:30, which is protected these social media companies since the law was enacted in 1996. So yes, the regulatory threat is true, not just the United States, but even more so in the European Union.