The chip sector has reversed its earlier gains this week, raising questions about whether this trend will persist or if chip stocks will rebound even higher. Paul Meeks, Co-CIO of Harvest Portfolio Management, is on Yahoo! Finance to discuss his outlook on the tech industry during this earnings season.
Transcription:
Seana Smith
Chip stocks 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 Nvidia. We want to bring in Paul Meeks. He joins us now. He's harvest portfolio management's 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 leg higher.
Paul Meeks
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 until we get through this very weird and squirrely earnings season. Because as we've gone through this earnings season, some companies are posting pretty strong results. Whenever a company 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 AI 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. Give me about two weeks.
Madison Mills
Ok, well, a lot of follow up questions potentially off of that, Paul, but I want to start on whether or not you think come Nvidia earnings when given the beats that we've seen from the likes of Meta, Microsoft Alphabet and Amazon, all of those make up 40% of Nvidia's revenue. I know we're still waiting on that last name. 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.
Paul Meeks
Regret it, but 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 hyperscalers were now through all of their quarterly reports. And the only thing that was not controversial at all was how much damn money they're going to spend on AI capex 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 28. You know what? I'll probably buy some more.
Seana Smith
Well, I'm curious 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 AMD's report. When we look at that roadmap ahead. Is there an opportunity for AMD, for some of these other chip makers to close that leadership gap that we have seen for so long from Nvidia?
Paul Meeks
I think that they may close the leadership gap a bit, but not significantly. Take a look at AMD. Yes. When they reported the other day, they moved their guidance from $4 billion in AI chips this year to $4.5 billion in the prior quarter. They went from 3.5 to four. 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 Nvidia will have most of the slices. And AMD, hey, it's a strong, well managed company. Under Doctor Lisa sue, there'll be a good second supplier, but Nvidia will have a hole on this market for as far as the eye can see.
Madison Mills
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 head into their earnings today? And is there anything else that you're looking at under the hood in terms of their cloud growth revenue specifically?
Paul Meeks
Yeah, you're absolutely right. I don't even look at that company as an e commerce 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, I'm pretty comfortable.
Madison Mills
All right, Paul, well, thank you so much for joining us. Really interesting points, particularly on Nvidia. Earnings as a potential buying opportunity. We appreciate you making the time here again. That was Paul Meeks. He is harvest portfolio Management's co chief investment officer.