Wall Street is grumbling about the continued resilience of the US economy in the face of aggressive rate hikes from the Federal Reserve, with some still expecting a recession to come.
But Neuberger Berman senior portfolio manager Steve Eisman is bullish on financial markets and says the answer is clear: Pessimists are wrong as the artificial intelligence race and more infrastructure projects boost the economy.
“We’re just moving forward, and I think the only conclusion you can come to is that the U.S. economy is more vibrant than at any time in its history,” he said. he told CNBC on Thursday.
Eisman, whose famous bet against toxic mortgages that led to the Great Financial Crisis was described in Big Short Tradeadded that the next stage in technology development will be the purchase of new phones and laptops by consumers with support for artificial intelligence.
That means Apple, which just unveiled a series of new artificial intelligence features, will face a massive upgrade cycle among customers upgrading their iPhones, he predicted.
Eisman added that his firm has begun researching which other stocks will benefit from the AI trend, but argues that investors should stick with any Apple shares they hold.
“Definitely maintain your position at Apple,” he said. “This is too central a figure in the whole story.”
Microsoft and Google parent Alphabet, which develop separate AI technologies, are also “major holdings,” but Eisman also raised a question he’s trying to answer.
One intriguing thesis claims that if AI proves to be as successful as people expect, the cost of creating software will “explode,” implying that the competitive advantage some companies enjoy won’t be as insurmountable, he said.
“So you could argue that hardware revaluation will continue and that some pieces of software will decline,” he added.
In other words, technology hardware companies that supply the AI sector should continue to thrive, but not so much software stocks.
Nvidia’s massive rally is an example of the recent shift toward hardware stocks. Shares of the AI chip market leader are up 166% year to date and up more than 200% year over year, making it a $3 trillion company that accounts for more than a third of S&P 500 gains this year.
Nvidia’s quarterly earnings show no sign that the rush to stock up on artificial intelligence chips is slowing down.
But relying on a single stock also poses a big risk, warned Apollo chief economist Torsten Slok.
“This high concentration implies that if NVIDIA continues to grow, it will be fine,” he wrote in a note on Wednesday. “But if it starts to decline, the S&P 500 will take a big hit.”