AI is not a bubble, says Hightower's Stephanie Link

Key Concepts

• Novo Nordisk (Novo): Pharmaceutical company, specifically discussed in relation to its GLP-1 drugs and their potential for Alzheimer's treatment.
• GLP-1 Drugs: A class of drugs, including those developed by Novo Nordisk, primarily used for diabetes and weight management, with potential applications in other areas like Alzheimer's.
• Alphabet (Google): Technology company, parent of Google, discussed in the context of its AI advancements, specifically Gemini 3, and its impact on the market.
• Gemini 3: Google's latest AI model, claimed by Marc Benioff to have surpassed ChatGPT.
• Artificial Intelligence (AI): The overarching theme driving significant investment and innovation across various sectors.
• Data Centers: Infrastructure crucial for supporting AI development and deployment, leading to increased demand for related services and equipment.
• Industrial Companies: Businesses involved in building and supplying infrastructure for data centers and the broader AI ecosystem.
• Utility Companies/Power Companies: Essential providers of electricity, expected to benefit from the increased power demands of AI infrastructure.
• Backlog: A measure of future orders or work a company has secured, indicating future revenue potential.
• Book-to-Bill Ratio: A metric indicating the ratio of new orders to revenue recognized. A ratio greater than 1 suggests demand is outpacing current revenue recognition, indicating growth.

Novo Nordisk: Disappointment and Future Outlook

Stephanie Link addresses the recent negative news surrounding Novo Nordisk, acknowledging it as a disappointment, particularly for those who had pinned hopes on its drug for Alzheimer's treatment. However, she suggests that the financial models may not have heavily factored in Alzheimer's due to the inherent challenges of the disease.

Key Points:

• The news is negative and disappointing.
• The impact on financial models might be limited as Alzheimer's was a speculative application.
• Bullish Argument: Investors are expected to focus on the successful launch of the Wegovy pill in the US, updated guidance, and potentially lower pricing for GLP-1 drugs, which should drive volume growth.
• Current Market Sentiment: Novo Nordisk is described as a "battleground stock" currently.
• Beneficiary: Eli Lilly is identified as a company that stands to benefit from Novo Nordisk's setbacks.

Alphabet and the AI Revolution: Beyond the Hype

The discussion shifts to Alphabet (Google) and the impact of its AI advancements, specifically Gemini 3. Marc Benioff's comment that Gemini 3 has "leapfrogged ChatGPT" is highlighted as a significant statement.

Key Points:

• Perceived Winners: Companies like Alphabet, perceived as leaders in AI, have seen their share prices rise.
• Broader AI Ecosystem: Link emphasizes that the AI revolution is not limited to tech giants but will benefit a wide range of companies across the "food chain."
• Industrial and Utility Sector Benefits: Companies involved in building data centers, grid infrastructure, and power generation are expected to be major beneficiaries. This is due to the significant increase in power requirements for AI.

Reinforcing the AI Boom: Evidence from Industrial Companies

To counter the notion that AI is a bubble, Link presents concrete data from industrial companies involved in building AI infrastructure.

Methodology:

• Analysis of order books and backlogs of industrial companies.
• Focus on companies supplying components and services for data centers and electrification.

Supporting Evidence (Specific Figures):

• Quanta Services: Backlog increased by 15% last quarter, reaching an all-time high.
• Eaton: Global backlog up by 20%. Their data center book-to-bill ratio was 1.7 times, indicating two years' worth of future business.
• GE Vernova: Electrification backlog up by 33%.
• Vertiv: Orders up by 60%, up 20% sequentially. Backlog increased by 30%.

Argument: These substantial backlogs and order increases represent "real revenue numbers" and "real revenue streams," suggesting that the AI boom is grounded in tangible demand and not just speculative hype.

Conclusion and Takeaways

The conversation highlights two key market narratives: the setback for Novo Nordisk in its Alzheimer's drug development, and the continued strength and broad impact of the AI revolution. While Novo Nordisk faces challenges, the focus is shifting to its core GLP-1 business. The AI sector, on the other hand, is presented as a robust growth area, with evidence from industrial companies demonstrating significant and sustained demand for infrastructure. This suggests a broad-based economic benefit from AI, extending beyond the major tech players to encompass the entire supply chain.