Nvidia, Palantir becoming overvalued due to AI hype, strategist says

June 8, 2023 at 4:10 PM

Tech speculators may be starting to grow wary of the growth promised by the artificial intelligence hype bubble. WealthWise Financial CEO Loreen Gilbert details which major tech stocks remain independently strong, while benefiting from AI trends.

Video Transcript

AKIKO FUJITA: Well, how big can the bubble get before it bursts? AI is the biggest trend on Wall Street right now and the hype is real. An AI fueled rally sent Nvidia shares up more than 150% so far this year. And the chipmaker is not the only company capitalizing on the trend.

Palantir shares surged toward a 17 month high after launching an AI powered data integration offering for manufacturers. And the rally is not showing any signs of stopping. But our next guest says, buyers beware, blaming the AI hype for driving stock prices to unreasonable levels. Let's bring in Loreen Gilbert, WealthWise Financial CEO, to make her case.

Loreen, your note's got a lot of us talking because we've heard over and over Nvidia is the big AI play. You've got that's on your list of not great buys right now.

LOREEN GILBERT: Well, and it's all about when you buy a stock and how you buy a stock. But if you look at the forward PE of Nvidia right now trading at over 200 times, that seems like an unreasonable valuation. And so there has to be a reason for it.

There has to be something that would sustain that kind of valuation. And that would mean that we'd have to see some catalyst for a huge surge in sales or some efficiencies in profit margins. And we don't see the same story like we did with Tesla, which was able to accomplish both.

So we just don't see that vision for the kind of valuation that we're seeing on those kinds of stocks. But it seems as though the money that was invested in crypto has now all gone to AI. And so when I say buyer beware, there will be winners with AI. We just don't know who those winners are going to be yet.

SEANA SMITH: Loreen, how do you go about trying to gauge who those winners will be down the line? Because I think so many investors are trying to figure out the next big thing. Yes, there is hype surrounding AI. So if it's not smart to buy Nvidia, it's not smart to get into Palantir, I guess what are you using as that base model in order to figure out who could potentially benefit?

LOREEN GILBERT: We're looking at the companies that we think could replace Nvidia. So, for instance, Microsoft, Google, those companies that could do it themselves and not rely upon another company for their architecture, and they could create it themselves. So we think that that has a lot more of a reasonable outlook, and as far as valuations, much more reasonable valuations as well.

AKIKO FUJITA: You're talking about companies that could own the full stack, right? I mean, there's so few, it would seem. And Microsoft is one. Some could point to Apple down the line.

You can take a name like a Microsoft that has seen a lot of gains on the back of it, on the back of their success and their partnership with Chat-- with OpenAI. Is this a good time to get in on that name?

LOREEN GILBERT: Well, we like it. We hold it. We do hold Microsoft. And we do think having those kinds of names, those are solid companies with solid balance sheets.

And they're not going anywhere. And they're going to be at the forefront of AI as well. So that's why I'm saying I think companies like that would be the ones to look for.

SEANA SMITH: Loreen, outside of technology, outside of the AI hype, you also point to another stock-- or you do point to a stock that you think is going to benefit here, at least over the summer. You see a catalyst here for Public Storage, a name that we don't talk about too often. Why do you like it?

LOREEN GILBERT: Well, storage units are very profitable. So we're looking at a very profitable business model. We're looking at a 4% dividend. That's 75% covered by operations.

And when we look at their debt structure, their debt structure is reasonable-- currently at 3.6% of their revenues. And even if it goes up to 5%, still a sustainable amount of debt load there. So we like the business.

It's something that people continue to need, storage units. And if you can't go out and buy your own storage unit, looking at one that's publicly traded is another idea.

AKIKO FUJITA: Loreen, when you look broadly at the markets right now, I mean, how are you thinking about where the investment should be? We've already talked about the key themes that we have heard over and over-- AI being one of them, tech is one that is becoming increasingly a crowded trade. Are there some big bargains that you think investors are overlooking?

LOREEN GILBERT: I do think when you look at opportunities, there's a number of opportunities. I think going down in capitalization is an opportunity, small and mid-cap, looking more on the fixed income side, which is still a great opportunity. And, frankly, we've seen the returns that we expected for the year already year to date. So taking that into account, the reality that we're most likely going into recession would be a time to reconsider asset allocation, look at taking some gains off the table, looking at increasing income as we see that as an opportunity, and ride out the rest of the year.

AKIKO FUJITA: Loreen Gilbert, WealthWise Financial CEO, some good tips there. Thank you so much for joining us.

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