As the Street debates over whether the AI frenzy is for real or just hype, an analyst at Wedbush on Friday allayed fears regarding a potential bubble burst.
Boom/Bust: Nvidia’s “quarter/guidance for the ages” delivered this week should not unduly worry investors, according to analyst Daniel Ives. For those doubters, the analyst has a definitive response. “Our answer is firm and confident: this is a 1995 Moment as now the AI Revolution and $1 trillion of incremental spending over the next decade is hitting the software ecosystem and rest of tech sector,” he said.
“Nvidia and the golden GPUs are the start of the spending wave…not the end.”
The AI revolution will only intensify further, as a myriad of use cases are built out across the enterprise and consumer ecosystem, Ives said, adding that this is a “transformational tech trend” not seen since the start of the Internet in the mid 1990s.
“For every $1 of spend with Nvidia on GPUs, the multiplier around the enterprise and consumer space could be $10+ over the next few years as this all plays out over the coming years,” the analyst said.
“Jensen [Huang] and Nvidia have essentially cracked the code and sparked a generational tech transformation that investors are trying to get their arms around,” he said.
The current AI frenzy is nowhere near the 1999/2000 period, Ives said. Back then during the 1999 Dotcom bubble burst, sky-high valuations, lack of monetization/ infrastructure, weak balance sheets, froth business models, and macro backdrop characterized the tech world, he said.
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Seeing Forest Through Woods: Nvidia’s earnings were a game-changing moment for the tech bulls, putting jet fuel in the tech bull market thesis as the second, third and fourth derivatives of AI play out over the coming 12–18 months, Ives said.
He noted that big tech stalwarts Microsoft Corp. MSFT, Alphabet, Inc. GOOGL GOOG, Meta Platforms, Inc. META, Amazon, Inc. AMZN and others cited accelerating CapEx for AI build outs on their earnings calls over the last few weeks.
Microsoft’s Copilot activity was well ahead of Street expectations and the company’s comments point to customers lining up to sign up for Copilot and AI deployments, Ives noted.
“The AI Revolution starts with Nvidia and in our view the AI party and popcorn is just getting started with this 1995 Moment,” the analyst said.
He also cautioned investors against missing out on the upside. “Investors that have missed the biggest transformational tech stocks [of] the last decade including Amazon, Netflix, Inc. NFLX, Meta, Apple, Alphabet among many others have dogmatically stuck with the forward PE valuation approach on these unique tech stories,” he said.
“For the elite, transformational tech stories such as Nvidia and the AI Revolution, investors must see the forest through the trees.”
Ives said he expects 60%-70% of enterprises to ultimately head down the AI use case path.
The Technology Select Sector SPDR Fund XLK edged up 0.28% to $206.35 in premarket trading on Friday, according to Benzinga Pro data. The iShares Semiconductor ETF SOXX added 0.48% to $646.50.
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