These are other AI plays as Nvidia positions itself as 'hub'

Tue, Aug 27, 2024, 2:27 PM

As the semiconductor industry has pushed the market (^DJI, ^IXIC, ^GSPC) to new heights this year, all eyes are on Nvidia's (NVDA) second quarter earnings report, which will be released after Wednesday's market close. Hennion & Walsh CIO Kevin Mahn joins Market Domination to discuss what investors can expect from the chip giant's results and break down the overall state of the semiconductor industry.

Mahn expects Nvidia to. beat earnings and revenue expectations, as well as announce increasing growth in its data center business. He argues, "Nvidia is positioning themselves to be the hub of the AI ecosystem in a similar fashion that Amazon (AMZN) became the hub of the e-commerce ecosystem."

However, he believes that there are other opportunities outside of Nvidia in the AI ecosystem. He points to Digital Realty (DLR) as one, explaining that it has partnered with Blackstone (BX) to build more data centers. He also highlights Modine Manufacturing (MOD) as another opportunity, explaining that they "supply. scalable, efficient, and flexible cooling solutions to data centers."

00:00 Speaker A

For the latest market moves, we want to welcome in Kevin Mann. He is Henion and Walsh, a chief investment officer. Kevin, it's great to see you. So it seems like at least judging from today's market action, many investors are staying on the sidelines right now ahead of tomorrow's results. What are the broader market implications from Nvidia's results tomorrow night?

00:19 Kevin Mann

It's clear to me that Wall Street is anxiously waiting to see if Nvidia will bring more joy to investors after they report earnings tomorrow. I think they will. I think they will once again exceed earnings expectations. They'll exceed revenue expectations and they're going to announce substantial growth in their data center business, data centers, which of course, their CEO refers to as AI factories. In fact, I think Nvidia is positioning themselves to be the hub of the AI ecosystem in a similar fashion that Amazon became the hub of the e-commerce ecosystem.

00:56 Speaker A

Do you, Kevin, having said that though, Nvidia has obviously enjoyed this very strong run. I mean, and even just since early August, it's running hot into that print. So do you want to own Nvidia here or when you're playing that AI mega trend, you are other names that you would prefer on your radar?

01:14 Kevin Mann

It's a great question. I wouldn't abandon Nvidia, but I think there are other opportunities in the AI ecosystem beyond Nvidia. A couple names that come to mind, I mentioned data centers earlier. How about a company like Digital Realty? They operate 300 data centers worldwide. They have a joint venture in place with Blackstone to build more data centers and they have a dividend yield of about three and a quarter percent. Not too shabby. And then I think of a company like Modine Manufacturing. No one on this show has probably ever heard of Modine Manufacturing. What do they have to do with the AI ecosystem? But you know what they do? They supply scalable, efficient and flexible cooling solutions to data centers.

02:09 Speaker A

What about Broadcoms? I know last time on the show, you upon the table for Broadcom still, which is, by the way, also had a tremendous run, 90% around in 12 months.

02:23 Kevin Mann

Yes, I still like Broadcom.

02:26 Speaker A

It goes higher.

02:27 Kevin Mann

There's more opportunities in the semiconductor and chipset than just Nvidia. It goes higher, it's got a dividend yield of one and a quarter and it's got a reasonable forward PE below 30.