Concerns over the stock valuations of companies related to artificial intelligence roiled the market this week. Whether these concerns recede as they did on Friday, or resurface again, will certainly be something to watch in the coming days and weeks. We understand the valuation concerns on the speculative side of AI trading, such as nuclear stocks and neocloud. Jim Cramer has warned about them repeatedly. But in the past week, a broader AI cohort has taken a hit, including the real companies that are making profits and driving what many are calling the Fourth Industrial Revolution. We own many of them. Nvidia and Broadcom on the chip side, and GE Vernova and Eaton on the derivatives trades that power energy-hungry AI data centers. Based on their fundamentals, that’s not what should happen. Beyond valuations, concerns also center on depreciation costs resulting from large investments in capital and AI infrastructure. In this regard, investors have a choice to make. Glued to a spreadsheet, the seemingly understandable approach of estimating the useful life of a high-tech asset based on history, and applying that depreciation rate to a financial model, could be aligned with the bears who argue that the chip should be nearly worthless after three years. Or hear from the executives who run some of the biggest companies in the AI industry, and hear what Jim gleaned from conversations with some of the world’s smartest CEOs. For the actual companies that are driving this AI investment cycle, such as the ones we invest in, we don’t think their valuations are that high or unreasonable given their growth rates and importance to the U.S. and, by extension, the global economy. We’re talking about Nvidia CEO Jensen Huang. He says advances in his company’s CUDA software have extended the lifespan of GPU chip platforms to approximately five to six years. Don’t forget. CoreWeave recently re-signed the H100 from Nvidia for release in late 2022. The bears with the spreadsheets will tell you those chips are worthless. However, we do know that the H100 retains most of its value. Or listen to Lisa Su, CEO of Advanced Micro Devices. She said last week that clients are now at the stage where they can “see the benefits on the other side” of these huge investments. We understand the expense concerns and depreciation issues that arise when these companies actually overstate the useful lives of these assets. But those who bet on people who have been driving innovation in the tech world for more than a decade, like Jensen Huang and Lisa Su, or Meta Platforms CEO Mark Zuckerberg and Microsoft CEO Satya Nadella, have been burned time and time again. The bears’ fears are not unfounded, but long-term investors would do well to take a cue from the technology experts. AI is real, and just like the internet, it will become increasingly popular and lead to increased productivity as the technology permeates our daily lives. We trust the management teams of the AI stocks we invest in. Trust is not an investment strategy, but that trust is based on a strong historical execution track record, the knowledge that these companies’ products are best-in-class, and a close examination of the underlying business fundamentals and financial profiles. By siding with our technology expert management team over the vocal financial expert bears, we have been in the right place in our trades for many years, and we don’t expect that to change in the future. (See here for a complete list of Jim Cramer Charitable Trust stocks, including NVDA, AVGO, GEV, ETN, META, and MSFT.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
