AI capex will be pivotal figure in tech, chip earnings

The chip sector reverses course from gains seen earlier this week. Will this trend continue or will chip stocks rebound even higher? Harvest Portfolio Management Co-CIO Paul Meeks joins Catalysts to discuss his outlook on tech amid this earnings season.

Meeks describes the current earnings season as "weird and squirrelly," stating he is refraining from buying tech names until the season concludes. He notes that while some companies are posting strong results, "their stocks go down the next day," leading him to characterize it as "too difficult of a market."

Regarding tech names, Meeks observes that this earnings season, "The only thing that was not controversial at all is how much... money they're going to spend on AI CapEx [capital expenditures]." He believes this "bodes incredibly well" for companies like Nvidia (NVDA), saying the semiconductor giant will "have a hold on this market as far as the eye can see."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video Transcript

Chip.

So losing some steam today as the NASDAQ rolls over earlier gains, giving up some of those earlier gains on that softer than expected manufacturing data.

Now today's move to the downside what you are seeing play out within the chip sector follows yesterday's risk on rally.

Actually looking at yesterday's move the chip sector recorded its largest single day gain in 14 months who led the charge was none other than Invidia.

We want to bring in Paul Meeks.

He is now he's harvest portfolio management's a Co Chief Investment Officer, Paul.

It's great to talk to you again.

So we're seeing a bit of a give back following yesterday's gains.

Not nothing necessarily to get too worried about.

I don't think up until this point.

I'm curious though what you make about the sentiment, the narrative surrounding these chip makers and whether or not some of the developments that we've seen this week makes it more likely that we are going to see another like hire.

I actually think we will see another leg higher, but even in my own tech portfolio, I have a prohibition right now on new buying, at least we till we get through this very weird and squirrely earning season because as we've gone through this earnings season, some companies are posting pretty strong results whenever a company, uh, posts earnings, there's always going to be a couple of flies in the ointment.

I mean, that's to be expected.

But companies that have had good things to say, sometimes their stocks go down the next day.

So it's just too difficult of a market.

I plan to add to my favorite A I infrastructure plays, which would be some of these semiconductor names, data networking companies and data server companies.

But only till we get through the end of this reporting season, you know, give me about uh two weeks.

Ok. Well, uh a lot of follow up questions potentially off of that Paul.

But I wanna start on whether or not you think come NVIDIA earnings when given the, you know, beats that we've seen from the likes of Meta Microsoft uh alphabet and Amazon, all of those make up 40% of Nvidia's revenue.

I know we're still waiting on that last name.

Uh Given that we've seen those positive earnings from some of those names so far.

Do you think you'll regret not buying NVIDIA when they're likely to have a good quarter based on that?

I think I may regret it.

But uh I have such a large position and I've held it so long at such a lower cost basis.

I'm pleased to wait.

But you think about it, all of their customers.

The hyper scalars were now through all their quarterly reports.

And the only thing that was not controversial at all was how much damn money they're going to spend on A I Cap X.

And so, unless they're lying about their capital expenditures, their capital expenditures are high and potentially even rising into 2025.

So this bodes incredibly well for NVIDIA and NVIDIA is trading at 31 times next year's earnings.

It's not egregiously expensive.

So I plan to when the stock settles and or we get to their report on August 28th, you know what, I'll probably buy some more.

But I'm curious because because you mentioned NVIDIA a lot, we all do, right?

Just because it's so dominant within this space.

We did see a lot to like in AM D's report.

When, when we look at that road map ahead, is there an opportunity for a MD for some of these other chip makers to close that leadership gap that we have seen for so long from NVIDIA?

You know, I think that they may close the leadership gap a bit but not significantly.

I mean, take a look at the A MD.

Yes.

When they reported the other day, they moved their guidance from $4 billion in A I chips this year to 4.5 in the prior quarter.

They went from 3.5 to 4, but it's still going to be a sliver, an absolute sliver of what NVIDIA is going to do.

So over time the pie will get bigger.

I still think that uh NVIDIA will have most of the slices and a MD.

Hey, it's a strong well managed company under Doctor Lisa Su.

There'll be a good second supplier, but NVIDIA will have a hold on this market for as far as the eye can see.

Paul remind me, do you own Amazon?

I sure do.

Ok.

So we've got Amazon earnings on deck here.

We're looking at cloud growth above 17% for Aws.

To what extent do you think that that could be a positive story for Amazon as we had into their earnings today?

Is there anything else that you're looking at under the hood in terms of their cloud growth revenue specifically?

Yeah, you're absolutely right.

I don't even look at that company as an ecommerce company.

I hope that they will continue prior to last quarter, sequentially increasing that year to year revenue growth for Aws.

You do not expect the 29% that we just saw for Microsoft Azure and for Google Cloud, but as long as they continue to accelerate, uh I'm pretty comfortable.

All right, Paul.

Well, thank you so much for joining us really interesting points particularly on uh NVIDIA earnings as a potential buying opportunity.

We appreciate you uh making the time here again.

That was Paul Meeks.

He is harvest Portfolio Management's co chief Investment Officer.