One of Wall Street's most influential strategists is sounding the alarm bell on the red-hot AI trade.
"AI is sucking all of the oxygen out of the room. But now I think we are entering that dangerous part of the story where we need to see it in the numbers," Morgan Stanley chief investment officer Mike Wilson said on my Opening Bid podcast (see the video above or listen here).
Wilson is credited with numerous big calls on the market, such as the 2022 "rolling correction" in stocks — a term he created. More recently, Wilson called out the potential for a 10% stock market correction in the third quarter as investors grow worried about the election and seasonal effects gain hold.
Warned Wilson, "I see AI everywhere, except in the numbers. Outside of a few companies where it's obviously been dramatic, it hasn't really driven revenues and earnings anywhere."
Wilson may be on to the start of a key trend that unsettles many AI bulls.
In late May, Salesforce (CRM) shares were slammed as the company's quarterly sales missed analyst estimates; it served up a lackluster outlook.
Analysts said Salesforce was seeing a slower-than-expected uptake of its various new AI tools, weighing on its outlook.
Another AI play, ServiceNow (NOW), had its stock slapped with a rare Sell rating in early June by Guggenheim.
The reason?
Not enough AI lift in the business to justify the stock's premium valuation.
"ServiceNow seems to be expecting an uptick in GenAI business in the second half, but our field work indicates this is not likely until 2025, if ever. Partner checks were generally positive for 2Q, but not as positive as they usually are. Several partners expressed concern about 2H24, especially since GenAI monetization is not happening en masse and is not likely to materialize this year, as management has suggested it would," Guggenheim analyst John Difucci said in his note to clients.
Shaking the AI bulls may take more evidence, however. And it's not without good reason when looking at an AI juggernaut such as Nvidia (NVDA).
On June 18, Nvidia reached a market cap of $3.34 trillion, making it the highest-valued company globally — briefly surpassing Microsoft (MSFT) and Apple (AAPL). The company's stock has dropped a touch since then, but the market value still hovers around the $3 trillion mark.
Veteran tech strategist Eric Jackson told me on Opening Bid that Nvidia's stock could double before year-end on the back of a shockingly positive quarter this summer.
Tesla (TSLA) CEO Elon Musk wouldn't be surprised by that.
"I'm incredibly impressed by Nvidia's execution and the capability of their hardware. And what we are seeing is that the demand for Nvidia hardware is so high that it's often difficult to get the GPUs. And there just seems this, I guess I'm quite concerned about actually being able to get state-of-the-art Nvidia GPUs when we want them," Musk told investors on his earnings call Tuesday evening.
Concluded Morgan Stanley's Wilson, "So it's not so much that AI is not a real theme, it's just that the expectations got ahead of the timing of this development."
Three times each week, I field insight-filled conversations with the biggest names in business on Opening Bid. Find more episodes on our video hub. Watch on your preferred streaming service. Or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
In the below Opening Bid episode, Goldman Sachs Asset Management portfolio manager Brook Dane reveals his under-the-radar AI plays.
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