Large-cap tech stocks aren't in an AI bubble: Analyst

view original post

Bank of America’s Global Technology Conference in San Francisco focuses on some of the major tech trends, most notably AI. Bank of America Securities senior internet technology analyst Justin Post joins Catalysts to discuss how the technology is transforming the sector.

While some may worry about an AI bubble, Post explains that current tech stock valuations are “not unusual if you look at large-cap tech versus ten-year history. So we don’t think we’re in a bubble for a large cap, at least on the internet side at this point.”

He adds that while individual companies are making their own spending decisions, overspending could pose a sector-wide issue. Post notes that content and advertising could explode on AI, and as long as companies “cut back on employees and other expenses, which we’re seeing across the space, we think they can manage the extra depreciation that’s coming through over the next few years.”

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcript

Our very own, Shana Smith is at the same conference that you’re at and she’s talking to some folks including the new N CEO who told her that there is a risk of an A I bubble.

Now in looking at my Bank of America notes that I love to read, I took a look at a chart that showcased the kind of NASDAQ versus S and P 500 performance over the past several decades here.

And it indicates that there was a larger spread between the NASDAQ and the S and P in the early odds versus today.

That spread is a little bit tighter.

Now, to what extent do you think that we are in two eras that are similar or disparate here when it comes to the concern about a potential tech bubble happening again?

Uh Sure, it’s, it’s very interesting.

I’ve been through maybe three of these transitions in my career.

Uh Certainly we had the internet build out in the nineties and then all the content that wrote on that.

Then we had the mobile build out with the device proliferation and all the content around that.

And this time, we have the A I technology and, and we can certainly get into the spend that’s going on ahead of the content and services.

But overall, these have been really positive transitions for the internet, space and tech in general.

And that’s how we think about A I at this point.

So a lot of build a lot of Capex driving the hardware companies and I think you’ll see really interesting services and advertising technology on top of that over the next five years.

So we, it is a positive as far as valuations, which I think was the crux of your question.

Um They’re not unusual if you look at large cap tech versus 10 year history.

So we don’t think we’re in a bubble for a large cap, uh at least on the internet side at this point.

And if you look at the valuations of companies like Meta or Google, uh which is alphabet now or Amazon, uh not unusual versus history at this point.

Well, just you mentioned Capex and as you know, too, well, all Capex is not created equal when it comes to things A I, what should investors be looking at to indicate which cap back on A I is useful for R and D in future potential gains versus just throwing spaghetti and money at the wall.

Uh Sure, it, it is interesting and it is a risk that there could be overbuilt.

I think each company is making a smart individual decision, but in aggregate are, are they spending too much is certainly a risk for the, for the companies.

A lot of the capacity is on GP US.

And uh we think, you know, there could be a little bit of overbuild but over a five year period, uh they will find usage for the GP US.

Uh I do think there will be an advertising and content explosion around A I and uh they’ll figure out ways to use it.

You could have a little bit of over upfront build as a modest risk.

Uh When we look at the depreciation expense coming through from all this Capex build, we think we have it in the models and uh as long as the top line growth is there, uh and, and they cut back on employees and other expenses which we’re seeing across the space, uh We think they can, they can manage the extra depreciation that’s coming through over the next few years.