These AI companies are 'setting the stage' for consumers: Senior portfolio manager

Key Concepts

• AI Capital Expenditure (CAPEX): Significant investment by companies in artificial intelligence infrastructure and development.
• Project Prometheus: Jeff Bezos's new AI startup, reportedly funded with $6.2 billion.
• Thinking Labs: An AI startup founded by a former OpenAI executive, seeking a $50 billion valuation.
• Hyperscalers/Public Cloud Companies: Large technology companies (e.g., Amazon, Microsoft, Google) that provide cloud computing services and are major beneficiaries of AI infrastructure spending.
• Private AI Companies: Emerging AI companies (e.g., OpenAI, Anthropic) that are shaping consumer access to AI.
• NVIDIA: A key player in AI hardware, with high expectations for its financial performance.
• Cisco: A technology company benefiting from AI infrastructure buildout, offering a more reasonable valuation and dividend yield compared to NVIDIA.
• Medtronic: A diversified healthcare company in the med-tech space, with exposure to cardiovascular devices and diabetes management.
• Visa: A payment processing company, still favored despite a recent judgment in a long-standing legal battle.

AI CAPEX and Investment Landscape

The current market is characterized by a significant surge in Artificial Intelligence (AI) capital expenditure (CAPEX) as business leaders race to invest in the technology, fearing they will be left behind in the next technological revolution. This trend is exemplified by Jeff Bezos's creation of an AI startup named "Project Prometheus," which has secured $6.2 billion in funding, with some coming from Bezos himself. Notably, Bezos is taking a management role in this venture, a departure from his recent approach.

Another significant development is an ex-OpenAI executive seeking a $50 billion valuation for her AI startup, "Thinking Labs." However, a contrasting perspective is presented by Aoko Yoshiko, Senior Portfolio Manager at Wealth Enhancement Group, who suggests that CAPEX-heavy business models are not what investors are currently seeking.

Public vs. Private AI Companies

Yoshiko differentiates between public and private AI companies. She states that public hyperscalers and cloud companies are the primary beneficiaries and funders of AI infrastructure through their operating cash flow. In contrast, private companies like ChatGPT, OpenAI, and Anthropic are instrumental in shaping how consumers will access and interact with AI. Yoshiko believes that an increase in tech companies entering the AI space is not inherently negative, but the key is to "follow the money" and understand where the spending is directed.

NVIDIA's Performance and Expectations

Regarding NVIDIA, Yoshiko anticipates strong financial results, stating, "I'm sure NVIDIA is going to do just fine." However, she emphasizes that the current focus is more on market sentiment and expectations surrounding the company. The market anticipates a "beat and raise" scenario, meaning NVIDIA is expected to exceed earnings estimates and provide an optimistic outlook for the next quarter.

For NVIDIA's stock to continue its upward trajectory, Yoshiko highlights the need for a revenue guidance of approximately $65 billion for the upcoming quarter. Any figure below this threshold could be perceived as a disappointment.

Diversification within Tech: Cisco

Cheryl brings up Cisco as an interesting case, noting its good quarter, reasonable valuation, and Yoshiko's continued preference for Amazon, Microsoft, NVIDIA, Google, and Apple. Yoshiko elaborates on Cisco's position, stating that it is a beneficiary of the AI buildout from an infrastructure standpoint. She points out that Cisco's valuation is significantly lower than NVIDIA's, approximately half, trading at around 17 times earnings, which is considered much more reasonable. Furthermore, Cisco offers a "nice dividend yield." While not experiencing the same rapid growth as NVIDIA, Cisco is identified as a beneficiary, and Yoshiko expresses continued liking for this diversification within the tech sector.

Healthcare Picks: Medtronic

Shifting focus from tech, Cheryl mentions a previous guest who had moved out of some healthcare names to take profits, indicating a small rotation occurring beneath the surface. Yoshiko confirms her positive outlook on healthcare, specifically mentioning Medtronic, which is set to release its earnings on Tuesday.

Yoshiko expresses a favorable view of Medtronic, describing it as a "nice diversified healthcare company in the med tech space." The company has exposure to cardiovascular devices and diabetes management, with plans to spin out its diabetes division next year. Yoshiko expects Medtronic to report solid numbers, with mid-to-high single-digit revenue growth.

Consumer Play: Visa

Despite a recent judgment in a 20-year legal battle with small businesses, Yoshiko still likes and owns Visa, viewing it as a play on the consumer. The segment concludes with Cheryl needing to depart, but the positive sentiment towards Visa remains.