Transcription:
CNBC TV
Big tech is continuing its run, driving the markets higher. Joining us now, Paul Meeks, Harvest Portfolio Management Co. CIO. Paul, great to have you with us.
Paul Meeks
Always happy to be here.
CNBC TV
It looks like you're all in on the AI trade when it comes to sort of the picks and shovels trade of it at this point. Why are you so sort of cautious on the next phase of AI?
Paul Meeks
So what I'm worried about is, at least not yet, have I seen enough real, what I call needle moving use cases for AI, because what I'm a little bit worried about, not for all companies, some companies, obviously will be huge beneficiaries, but for many companies, I believe AI will be a feature, not a product, not a product platform. That in and of itself drives revenue and profits and cash flow. And for those companies, if it's just a feature, it pretty quickly becomes commoditized and I don't know if it has that great of a financial impact.
CNBC TV
So that thesis can't live as a silo next to the thesis that Nvidia will go to the sky. I mean, at what point do the two stories sort of converge and you say, you know what, that was a lot of pull forward on the picks and shovel side of the trade, and it's time to reallocate?
Paul Meeks
That's the perfect question. So what I think is, and maybe I'm a little bit contrarian, even though tech stocks have come back in recent sessions, it has been a pretty nasty couple of weeks for the standard bearers like Nvidia. But I actually think the AI infrastructure build is going to continue for a couple more years. And so that's where I'm a bit different because some people believe when they sell off these stocks that we're going to go from very rapid growth to just absolutely hit the wall. And so it's going to be my responsibility. Right. Active lead traded tech portfolio manager to get folks out at closer to the top. But I actually think the top is pretty far away for what you call the picks and shovels, guys.
CNBC TV
When you look out to the rest of the year, though, Paul, what do you think is the catalyst for, you know, for this trade in particular? I mean, the first half, it was all about increased capex. It was a hyperscalers increasing their, their expenditures. That's not going to happen in the second half, or at least definitely not to the same degree. And so in the second half, what do you, what are you seeing as sort of, you know, the oxygen that's going to allow this trade to move higher?
Paul Meeks
So I think the oxygen is just a confirmation from the hyperscalers are going to spend, because even on their last quarterly calls, and of course we get a refresh in a couple weeks, they talked about capital expenditure plans for the rest of this year and going forward. So I don't think they're going to come on in the next couple of weeks on these June quarter calls and give us more data. But maybe just a confirmation that yes, we're going to spend all those tens of billions and the supply is going to continue to be tight for the semiconductor vendors, also for the server vendors, and then a few data networking companies. And so they should get not only very strong unit volumes, but they should.
CNBC TV
Also start to bump up in pricing research. Had an interesting note out yesterday, Paul, saying, you know, it's, maybe it's time to dust off the AI laggard, saying, you know, last year what we saw was in the second half of the year, we saw these laggards like Adele and IBM, intel, we saw them really, you know, off to the races in the second half. And maybe we're due for a repeat this year, especially as people are questioning the valuations of some of the high flyers that you're in. Do you subscribe to that thesis that maybe investors will be looking for sort of the lower multiple AI trade?
Paul Meeks
I think they will do that, but I think that's a mistake, because particularly in AI, as it is with most tech trends, I believe that the strong gets stronger. And what I mean by that, who has the dollars to spend on capex and R and D and even potential acquisitions? And so unfortunately, the 800 pound gorilla becomes even bigger. And so, I don't know, even though it's tempting to say, okay, this stock trades at ten times, the other one already trades at 40 times. I don't know if that is going to be a good strategy. What I stick to is not just the semiconductor companies, but as you mentioned, some of the server plays like Supermicro Dell and Hewlett Packard Enterprise.