Nothing has defined 2023 like the artificial intelligence (AI) boom. Since ChatGPT’s launch in late 2022, AI has revolutionized many sectors, creating a new era of millionaire-minting stocks. Many companies have ventured into the space or doubled down on AI technology. But few names have ridden the wave as much as Nvidia (NASDAQ:NVDA).
This semiconductor producer has the unique edge of making the chips that power ChatGPT. While NVDA stock has been catapulted to the trillion-dollar club via its significant AI exposure, though, these impressive gains have compelled some investors to speculate whether it may be a bubble. InvestorPlace’s Luke Lango — an expert who has long-touted the power of AI — shares in this skepticism.
Lango has repeatedly made the bullish case for AI as a market-changing phenomenon, predicting that it will usher in a new bull market. The way trends are shifting, his bullish thesis appear to be correct. But while Lango is all-in on AI as a sector, he isn’t as optimistic when it comes to the future of Nvidia.
NVDA Stock in an AI-Driven Market
September has finally seen NVDA stock slow down after months of staggering growth. Shares are down more than 7% for the past one month but still up more than 60% for the past six months. These gains also pale in comparison to NVDA stock’s 200% rise year-to-date (YTD) and 230% rise for the past 12 months. To call Nvidia a breakout stock would be an understatement.
Even with this type of growth, though, Lango doesn’t see NVDA as the best way to play the AI boom. In fact, the analyst is proceeding with caution. He notes that, while Nvidia has benefited significantly from the AI frenzy this year, its growth may peter out. “I think that ball game in particular is in the eighth or ninth inning,” says Lango. “It’s time to find the next story and the next stock.”
Lango sees Nvdia’s recent earnings smash as an important indication that the AI boom will continue. But that doesn’t mean the boom will keep carrying NVDA to the top.
Of course, many experts remain convinced that shares of the company will keep rising as AI enthusiasm persists into 2024. But Lango’s bullish thesis on AI helping usher in a new bull market doesn’t include further progress from Nvidia:
“I actually think the Nvidia stock train has ran its course. In our portfolios we’ve been selling down our Nvidia position because we don’t think that there is much more runway there. We think that that stock is very, very, very richly valued. We think that its demand boost has already been priced and the estimates […] have already moved higher. I don’t see much room for further upward estimate revision. And the thing about Nvidia that a lot of people aren’t talking about is 40% of the revenues came from two customers in the first half of the year […] What you’re seeing is […] a lot of front-loaded demand from overseas, from China and from the Middle East […] I don’t think that can last forever.”
In our interview for InvestorPlace, Lango didn’t name specific stocks that he sees as better bets for investors seeking AI market exposure. But he has written about how AI could help revolutionize the medical industry. More recently, Lango also speculated that Tesla’s (NASDAQ:TSLA) new supercomputer could accelerate the end of Nvidia’s time as a leader among AI stocks.
Three Waves of AI
Part of why Lango is moving away from NVDA stock is that he sees the focus of the AI boom shifting. He compares the way the boom is playing out now to the first internet boom of the early 1990s, which ultimately gave rise to the powerful tech sector we know today.
As Lango sees it, there will be three waves of AI. To him, the market is currently experiencing the end of the first wave — the chipmaker wave — which has spurred growth for companies like Nvidia and Advanced Micro Devices (NASDAQ:AMD). Next, the second wave will boost infrastructure developers, or “the people that take those chips and make physical things with them.” That group includes names like automation innovator Symbotic (NASDAQ:SYM).
According to Lango, though, investors should be most excited for the third wave of the boom:
“The third wave, which is probably going to be the most profitable wave, is going to be the software side of things […] Once everyone’s bought the chips and everyone’s built the infrastructure for AI, [then it will be] who can build the most scalable, useful and valuable applications on top of that infrastructure. And so that’s how I am viewing this AI boom.”
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
