Warren Buffett – arguably the world’s greatest investor – once said that it pays to be greedy when others are fearful. And I believe that is certainly the case we have with tech stocks today.
Right now, tech stocks are crashing on fears that the so-called “AI Bubble” is popping. AI favorites like Nvidia (NVDA), Super Micro (SMCI) and Arm (ARM) are all down more than 5% on the day.
But there’s fear… and there’s reality.
And while investors worry that this ‘bubble’ is popping, we believe that in reality, the AI megatrend is only getting stronger.
The Earnings Breakdown Is Bullish
Just look at all the tech earnings that hit the tape over the past 24 hours.
Alphabet (GOOGL) reported strengthening growth in its core cloud business due to accelerating demand for its infrastructure and generative AI solutions. The company also reported that its core Search business is benefitting from new features like AI Overviews, which is proving very popular among younger users. And management mentioned AI about 100 times on the quarterly conference call, with CEO Sundar Pichai emphasizing that currently, the risk of Alphabet underinvesting in AI is far bigger than the risk of overinvesting.
Our takeaway? One of the world’s largest tech companies is going all-in with AI – and has no intention of slowing down anytime soon.
Meanwhile, semiconductor firms Seagate Technologies (STX) and Texas Instruments (TXN) both reported strong quarterly numbers last night. Seagate, in particular, mentioned that continued strong AI infrastructure investment is driving accelerating growth at the company.
Vertiv (VRT) – a supplier of cooling equipment for data centers – also reported accelerating revenue growth in its earnings report this morning, citing increased investment in AI data centers as the driver of that strong growth.
And software firm Check Point Software (CHKP) reported record results this morning, too. The firm’s management team also attributed a large portion of its recent success to strengthening AI investment and interest.
The Final Word on AI and Tech Stocks
Clearly, folks, the AI bubble is not popping. That’s the fear but not the reality.
In truth, it seems clear that the AI megatrend is only strengthening. That’s why we think it may be time to buy the dip in tech stocks.
We view this selloff as irrational. It is not supported by the fundamentals.
Typically, when stocks drop in response to good fundamental news, that means they are overvalued. But while rich relative to historical standards, tech stock valuations are not stretched relative to current AI-powered growth prospects.
Therefore, we’re chalking up the current selloff to buyer fatigue. Tech stocks, in our opinion, may just be taking a breather after a torrid run higher. We don’t think this is anything more than that.
So, following the great Warren Buffett’s lead, it is probably time to get greedy while others are fearful.
Find out a few of our favorite stocks to buy amid this overdone selloff.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
