In an insightful interview on CNBC TV's "Squawk Box," renowned tech investor Paul Meeks unveils his perspective on investing in the future of Artificial Intelligence (AI). Meeks highlights five standout stocks he believes are pivotal for those looking to invest in the burgeoning AI sector. This conversation serves as a pivotal guide for investors aiming to align their portfolios with the technological advancements of tomorrow. Watch the video below.
Transcription:
CNBC Squawk Box
And a partner at Wall Street Beats. I don't know of anyone that doesn't see the long term promise. I guess Paul in AI. But there are some smart investors that do think. Thinking about Stan Druckenmiller the other day, who did at least sell some of his Nvidia. He bought other AI stuff. But do you think we're in a period here where it might not be the perfect time to buy, maybe get cheaper prices down the road?
Paul Meeks
Well, some of these stocks, particularly the infrastructure builders like Nvidia, when I call the picks and shovels of the AI gold rush, some of them have come a long way. However, Nvidia is our frontman, 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 27, 28 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 there, sure, all these products will be ubiquitous. However, will they be money makers? I don't know. Will they really move the financials of said companies? I don't know.
Paul Meeks
So even though it sounds like a boring, uncreative way to look at AI, I'm sticking with the infrastructure plays. And Nvidia, of course, is near the top of my list.
CNBC Squawk Box
Do you think there's parallels with the way the Internet played out back in the nineties, Paul? 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 drug company. 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 two B, or whatever it was the Internet did for them. So this could be, you could look at the entire Russell 2000 to try to figure out who to buy that AI is going to help.
Paul Meeks
Excellent question, Joe. We were both around during that period. Back then, I ran all the tech money for Merrell, and when the Internet bubble popped. I still have the lashes on my back to prove it. So I learned a lot of lessons. 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 80 20 rule, it's going to be the 90 ten rule where. Yeah, 10% heroes, 90% no go, the magnificent seven.
CNBC Squawk Box
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?
Paul Meeks
I say 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.
CNBC Squawk Box
So. Okay, so five out of. So 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 seven if they hadn't moved so much already.
Paul Meeks
Yeah. No, 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.
CNBC Squawk Box
Is there anything in the macro backdrop that you concern yourself with that you're talking about earnings doubling? Obviously, you're not talking about multiple, but I don't know if you're counting on 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 November. But what do you think of either of those two issues?
Paul Meeks
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 and 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 ten year treasury note, very briefly, got to 5%. That caused an absolutely 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 five, six, seven cuts now. We may not have won. And so, yes, that is very big. And on the regulatory side, yeah, there's newfound 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 230, which has protected these social media companies since the law was enacted in 1996.
Paul Meeks
So, yes, the regulatory threat is true not just in the United States, but even more so in the European Union.