Nvidia Down 14% Last Week – No Problem, Says Portfolio Manager, As He Sees Revenue And Stock Doubling Over In Next Several Years

Nvidia Corp. NVDA shares fell about 14% in the week ended Sept. 6 amid macro concerns. On Friday, portfolio manager and founder of Niles Investment Management Dan Niles weighed in on what’s in store for the artificial intelligence stalwart as well as the technology sector per se in the near and medium term.

What’s Ailing Techs: The weaker sentiment toward technology stocks is due to the fact that it is becoming clearer for investors that companies are spending a ton of money on AI, and even as the spending on AI climbs, revenue forecasts are going down, said Niles in an interview with CNBC.

The quarterly reports from the three biggest hyperscalers – namely Alphabet, Inc. GOOG GOOGL, Microsoft Corp. MSFT and Amazon, Inc. AMZN – showed each of them upped the amount they were going to be spending on AI infrastructure, he noted. “So at a certain point, you are spending a lot of money but you will want to see a return,” he added.

To make his case, Niles noted that post COVID-19, Nvidia’s revenue growth surged to 80% year-over-year and then there was the hangover when demand started to slow down. These 3 big hyperscalers started to slow their spending and Nvidia’s revenue growth turned negative to a -20% and the stock went down 66% through the digestion phase, he said.

AI spending is much more rapid than what was seen during the Internet infrastructure build-out, Nile said. This is evident from the fact that Nvidia’s revenues rose by five times since the launch of the ChatGPT, he said. Much like post-COVID, things started to slow down at the big internet companies that were spending on infrastructure and the forward numbers are starting to come lower, he added.

Time To Diversify Out Of Techs? Niles said he thinks there is still a lot of room to spend. “You have a phase you have to go through. I firmly believe in the next several years that Nvidia’s revenues will be able to double from current levels and the stock will be able to double as well,” he said.

Looking at areas outside the tech sector to put money in, Niles said it could be time for consumer staples, utilities, and telecom services to shine when the Federal Reserve begins to cut rates. He noted since July 16 when the S&P 500 peaked, it is down about 5% or so and the equal-weighted S&P 500, though, was down about 70 basis points. This compares to the Magnificent seven’s drop of about 11% or so, he said.

“So, I think investors need to think where is the wind at my sails,” Niles said. The portfolio manager said there is definitely going to be rate cuts and the only uncertainty there is the number of cuts between now and the end of the year. There would be more in the next year, he added.

Niles also said he does not foresee a recession as the job openings are now more than the number of people who want employment. “In a services-led economy, it’s hazard to see how you end up with a recession in that environment,” he said.