Published -June 30th, 2023 @ 2:15 PM (GMT+2)
Artificial Intelligence (AI) stocks have been spotlighted recently, particularly with companies like Nvidia (NASDAQ:NVDA) leading the charge. There's been a debate about whether these stocks are in a bubble. However, many financial experts, including Anthony Scaramucci, the founder of SkyBridge Capital, believe they should still be a part of long-term investment portfolios.
Potential Export Restrictions on Nvidia
Nvidia, renowned for its semiconductor technologies, is one of the industry leaders pushing the envelope in the AI sector. However, potential export restrictions by the US Commerce Department could affect its ability to sell top-tier products to China, a global competitor. This follows a precedent set by the Biden administration's regulations last September, which halted Nvidia's export of A100 and H100 chips to Chinese customers without a license. The potential financial impact was estimated at about $400 million per quarter.
Despite the projected loss, Nvidia adapted by designing less advanced chips, the A800 and H800, thereby reducing the impact of the restrictions. The company's resilience amidst challenges has bolstered investor confidence in its long-term prospects.
Analysis of Nvidia's Business Performance
Joseph Moore, a Morgan Stanley analyst, observed that Nvidia's data center business has roughly doubled since the $400 million prediction. He conjectures that the maximum impact on Nvidia would be $700-800 million, or less than 10% of data center revenue. However, he anticipates the actual effect to be "probably less", demonstrating the resilience of Nvidia's business model.
The Rising Global Demand for AI
The global demand for AI has surged significantly, thanks mainly to the ongoing AI boom. Moore cited that US customers were eager to repurpose any product initially destined for China, further validating the growth potential of AI.
In the long term, China's restrictions could pose a significant limitation. However, it's expected that Nvidia's high-performance products would only be available to Chinese clients due to the rapidly improving performance of these products. Despite these potential obstacles, Moore remains confident in Nvidia's near-term results, maintaining an Overweight (Buy) rating for NVDA shares with a $500 price target. This suggests a possible ~22% growth in the upcoming year.
Nvidia's Stock Performance Amidst AI Advancement
Nvidia's role in AI advancement has led to an impressive surge of 179% in its shares this year. The stock is trading at 53 times analysts' adjusted earnings estimates for the current fiscal year, indicating investor confidence in its future growth.
Compared to the early days of internet stocks, Scaramucci's strategy for investing in AI stocks is rooted in patience. He refers to his 25-year ownership of Amazon as a testament to the benefits of long-term investing. Despite Bloomberg reporting a 39% loss in SkyBridge's largest fund in 2022 due to bad bets on cryptocurrencies and the FTX platform, Scaramucci maintains his optimistic outlook on AI stocks.
Scaramucci's Take on Long-Term Investing
He humorously reminds his clients, "everybody's a long-term investor until they have short-term losses", emphasizing the importance of a long-term perspective in investing.
Conclusion:
To sum up, industry leaders like Nvidia continue to showcase resilience and growth potential despite potential obstacles and the ongoing debate about AI stocks being in a bubble. The overarching consensus among financial experts seems to lean towards optimism and the value of long-term investment strategies in the AI sector.
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