Transcript:
Caroline Woods
Tech is under pressure once again. Is the AI trade in trouble? Joining me now is Patrick Moorhead, founder, CEO, and Chief Analyst at Moore Insights and Strategy. Patrick, thanks so much for being here.
Patrick Moorhead
Caroline, thanks for having me on, I appreciate it.
Caroline Woods
All right. So tell us what’s going on with the tech trade.
Patrick Moorhead
Yeah. So the recent sell off even today sell off is really not about demand. Demand is there. Right. But memory prices have roughly doubled. You know, recycled China export control noise hit and people are taking profits after the big run. You know CPI came in. There’s I ran uncertainty. So yeah there’s a lot of uncertainty. But the I build out is still intact.
Patrick Moorhead
And the case is really valuation not in demand.
Caroline Woods
Okay. Interesting. We’ll dig into that bear case in just a bit. But for investors who feel like they missed the eye trade and they’ve been kicking themselves, is this the opportunity they’ve been waiting for to get in?
Patrick Moorhead
I do think it is the opportunity. I think timing will matter. The two things that are coming in on the side, that that I think investors should pay caution to is interest rates. And in Iran, there’s even talk about a double interest rate, increase. But once those are baked in, I think it’s a time to jump in.
Patrick Moorhead
This is a decade opportunity. We’re in year three on. And there are a lot of companies that there’s still a lot of room to grow.
Caroline Woods
But you’re saying once those are baked in. So that opportunity is not today.
Patrick Moorhead
Yeah, I’m literally talking about the opportunity is tomorrow. Right. Once the discussion in the debate about how many enter it. Well, first of all, will there be an interest rate increase? I think most people are saying yes. The wild card is obviously Iran, but but we know how that gets played in. Oh, by the way, a lot of that inflation is being pulled over by the increase in gas prices, globally.
Patrick Moorhead
So I think this week is is the time to reassess and and just go for it.
Caroline Woods
Okay. So for those investors who want to put fresh money to work, where should they start looking first?
Patrick Moorhead
Yeah, I think right now I think the number one place they should be looking at are the infrastructure names that that either don’t get the respect that they deserve or, the increase in revenue and profits are being pulled in there for how I is going to change. So, for instance, Dell and HP and Cisco, I think it’s very obvious that enterprises are very concerned about the token prices.
Patrick Moorhead
And in combination with companies like Nvidia and Intel and AMD, they are putting up very interesting platforms that don’t sit in the cloud but actually sit in the businesses that are out there. We saw Nvidia talking about this at their GTC event in in Taipei. So it’s essentially running applications on your PC, on your workstation and on servers that are inside of your business.
Patrick Moorhead
And I think that very much favors Dell, HP and Cisco.
Caroline Woods
Okay. So those are three names based on valuations today. What other AI related names look attractive to you.
Patrick Moorhead
Yeah. So let’s get let’s get into chips. Chips. So even though Qualcomm has had a major run here, it’s one of the cheapest large cap settings, right. Diversifying beyond handsets and getting into data center CPUs I got an investor day later this month. I’m going to be checking into, micron. Right. You know, memory is structural, structural upcycle, not cyclical high bandwidth memory, which is a high, high priced, high margin memory that goes into AI GPUs, is committed through, 2026, and it’s still valued like a specific cyclical.
Patrick Moorhead
And the final is is Intel and yes, similar story way up. But it’s not a value multiple. Right. These foundry turnaround proof points keep stacking even though there was a little bit of duplication with this alphabet slash Google order for 3 million AI chips. It it gets more real. And that’s where the valuation come from. And that’s on top of cadence, which is the software that goes into making all of these new chips committed to Intel’s latest no.
Patrick Moorhead
Called 14 a that’s a mouthful.
Caroline Woods
Noticeably missing Nvidia. Not a single Meg seven on that list of names that you’ve mentioned. Is that intentional?
Patrick Moorhead
You know, listen, these stocks are hot. And there’s a lot going into them. I don’t think those are necessarily bad, bad looks, particularly if you look at in video, at their forward PE, it seems to get no respect. But the thing that the street can’t get beyond Nvidia is that if you truly map in the future PE and the future cash flows, it literally would have higher GDP than the country of France.
Patrick Moorhead
Okay. You’re looking at 5 to $6 trillion. And there’s this this, buffer that the street’s having a hard time getting forward. I think we’re going to have to see 2 to 3 be and raises for the street to get fully, behind, a company like Nvidia.
Caroline Woods
I also noticed you haven’t mentioned any software names. So what should we glean from that in terms of where you’re finding the biggest AI opportunities today?
Patrick Moorhead
I think there’s still going to be a lot of chop, even though I don’t buy into the whole apocalypse. Apocalypse, narrative, which is essentially, that AI is going to be able to allow enterprises to make all their software. And these companies are essentially their terminal value is is zero. We have seen an exceptional pop right of service now of Salesforce, companies like that.
Patrick Moorhead
But I still think every new crazy new model that comes out from anthropic and ChatGPT is going to drag is going to drag that down. And I think until that shop gets get gets figured out, I just think the other infrastructure names are, are better looks.
Caroline Woods
So I’m curious, do you think that with space X coming up, do you think that we need to see a strong debut and follow through to keep enthusiasm around the trade, the I trade specifically alive with me.
Patrick Moorhead
I think a solid, space, outing. You know, anything above $135 would be a really good, good sign. Interestingly enough, so much money and capital is going to go into that, that it could potentially drag other parts of the market down. But I think in the mid term, give it some air to breathe, give it a couple weeks after SpaceX comes out and if it’s positive, I think we could see lift, from anything else.
Patrick Moorhead
And it’s really about just the overall enthusiasm, for tech. Right. Because space is not necessarily it’s not chips. It’s a little bit of infrastructure through, Z and what it’s doing, but it’s essentially, building a brand new market, out there, which really hasn’t had a lot of thought and respect and quite frankly, up until this point, used to be a NASA, government funded by by certain contractors who might, launch a rocket, on a monthly basis versus now on a multi-week, multi, years plus, this idea and new business of essentially going around all the carriers by putting up, satellites and being able to, circumvent
Patrick Moorhead
all of those, most of the profits of the carriers and the cable companies out there.
Caroline Woods
Okay. So what’s a tech name you take profits on now to buy SpaceX shares come Friday?
Patrick Moorhead
I think you probably I would probably take it, on, on, in the run up you saw with Salesforce or a service. Now, I think that would be a pretty, pretty safe bet until the software stocks get get there. I would call it, the volatility goes down on that.
Caroline Woods
Interesting. Because we’ve seen a much more impressive run ups for some of these other tech names versus CRM. And now, to take profits on those. But that’s saying something. So you had mentioned, though, that the bear case for AI is not demand but rather its valuation. Are tech valuations stretched here or is that the wrong read?
Patrick Moorhead
So, I think it all gets down to glass half full and glass half empty. And it’s almost a spiritual discussion at this point. If you fundamentally believe that that downstream the, the benefits of AI and the value, transfer or the ability to transform complete industries and even, you know, it sounds a little dramatic, but even humanity as a whole, by curing, certain diseases that are never been able to, been cured, I mean, it literally has almost unlimited value.
Patrick Moorhead
I mean, a laughable, valuation, meaning it’s it’s it’s way, way too low. The glass half full crowd, goes in and in that they, you know, it’s it’s very spreadsheet based and very historical based, looking at dot com and what what happened what happened there? I, I tend to lean on the glass half full and this is a technology.
Patrick Moorhead
And again, I’ve been doing this a long time. I was an operator at companies like, AMD, ran real businesses. I was@a.com, during.com and saw what happened. This is just very different in terms of the end benefits of the technology. And the speed at which, it can happen, the run through, for, dot com.
Patrick Moorhead
And it was ten years before most people could get access to exceptional broadband and the services that could, take advantage of that. Here we are. We’re we’re three years in, and we’re doing things that we never even thought we could ever do before.
Caroline Woods
Okay. All right. I think this is a great time to pivot to our rapid fire game of this or that. Quick questions, quick answers. Are you ready, Patrick.
Patrick Moorhead
I am ready.
Caroline Woods
All right. We’re going to summarize your valuation call. Tech valuations stretched or justified. Justified chip selloff overreaction or warranted.
Patrick Moorhead
Overreaction.
Caroline Woods
I bubble or boom.
Patrick Moorhead
Boom boom boom.
Caroline Woods
Early innings or late stage.
Patrick Moorhead
Early innings.
Caroline Woods
Best AI play today Microsoft.
Caroline Woods
Nvidia or Google.
Patrick Moorhead
Google.
Caroline Woods
Google or meta.
Patrick Moorhead
Meta.
Caroline Woods
Meta or Apple. Meta AMD or Intel.
Patrick Moorhead
Intel.
Caroline Woods
Oracle or Adobe. Ahead of earnings. Oracle is one chip stock you’d add on a weakness.
Patrick Moorhead
I’d say Nvidia.
Caroline Woods
Okay Broadcom or Micron. Broadcom Qualcomm or Cisco.
Patrick Moorhead
Qualcomm.
Caroline Woods
Cisco or IBM.
Caroline Woods
IBM HP or Dell.
Patrick Moorhead
Dell.
Caroline Woods
ARM or AMD.
Caroline Woods
AMD the most overlooked AI stock today.
Patrick Moorhead
Qualcomm.
Caroline Woods
Mega cap tech or the next generation of AI winners.
Patrick Moorhead
Next generation.
Caroline Woods
One next gen stock definitely on your watch list.
Patrick Moorhead
Qualcomm.
Caroline Woods
Buy the dip or wait for a bigger flesh.
Patrick Moorhead
Wait.
Caroline Woods
SpaceX is $1.75 trillion valuation fair or fantasy? It was.
Patrick Moorhead
Fantasy midterm.
Caroline Woods
What level would you buy? SpaceX.
Patrick Moorhead
$135. Today’s like.
Caroline Woods
Oh so you would get in on the IPO and on the other side.
Patrick Moorhead
Maybe I’ll let you know. Yes, actually I did at 135. That’s my offer.
Caroline Woods
Space are anthropic which debut matters more for the AI trade.
Patrick Moorhead
Anthropic.
Caroline Woods
Which are you most bullish on space anthropic or OpenAI trading?
Patrick Moorhead
OpenAI.
Caroline Woods
OpenAI IPO buy on day one or wait for the dust to settle.
Patrick Moorhead
By on day one?
Caroline Woods
And one? Word to describe how your feeling about the tech trade. Even despite the weakness. Bullish Patrick Moorhead, founder, CEO and Chief Analyst at Moore Insights and Strategy. Thank you so much for playing along. We appreciate your picks and your perspective.
Patrick Moorhead
Thank you, Caroline, for having me.
Caroline Woods
On if you enjoyed this street talk, check out our full interview with Ken Mahoney where he reveals what he’s buying on the market. Pullbacks.