Apple is a 'sleeper AI play': Strategist

Nvidia (NVDA) shares are rising in extended-hours trading after the chip giant topped first quarter earnings estimates and announced a 10-for-1 stock split. Public Ventures President and Chief Market Strategist Lou Basenese joins Asking for a Trend to break down the earnings and analyze how long the company can keep up the momentum.

Despite beating Wall Street's expectations, Basenese highlights that the magnitude of Nvidia's beat is the smallest it has ever been, at about 8%. He warns, "Expectations at some point are going to get too far ahead of what Nvidia can deliver, but it's not yet."

"I think it's the leading candidate to be the next $3 trillion market cap company, but if I had a dollar to put to work today and I want to 10x it, it's not Nvidia. It's probably in the smaller cap side of the market," he adds, saying that of the "Magnificent Seven," Alphabet (GOOG, GOOGL) is the most "reasonably valued."

Basenese calls Nvidia's stock split a "brilliant move psychologically," as buying a stock at a lower price is more enticing. He adds that it does not change any of Nvidia's fundamental metrics or value calculations.

For investors looking to get in on the AI sector, Basenese highlights Microsoft's (MSFT) ability to push AI products onto the market to create demand. He also points to Apple (AAPL) as "the sleeper AI play."

"Apple is kind of perceived as they missed the boat ... they're never first or second to market. They come in later, but then they go. They come in late, but they end up being the leader." He adds, "They have two billion active devices in use. If they just iterate and add a little AI somewhere, it has a magnified impact."

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Melanie Riehl

Video transcript

And we are also announcing a 10 for one forward stock split and boosting its dividend by 100 and 50%.

NVIDIA has been all the market can talk about.

The company has added more than a trillion dollars to its valuation this year.

Thanks to its soaring stock price is now the third largest US company by market cap topping 2.3 trillion.

It's a cent has been staggering and fueled expectations that some say have become maybe too aggressive here.

Joining me now is his thoughts is Lou Bassinet's M DB capital, President and Chief Market Strauss Lou always good to see you.

Great to be here again.

So let's let's just start in video reports.

Th this thing, Lou was we were talking off camera, so it's up 90% year to date, right?

And really everyone's on the same side of the boat.

90% of analysts were telling me II I need to buy it.

It's tacking on another 2.6% after hours.

What do you make of the report?

Give me your, I'm on that 10% of this.

I I'm a forever contrarian evaluations.

Always kept me out of this.

But if I look at this report, I mean, cue up the Waynes World with party on mode garth.

I mean, let's go because there's nothing bad in this report.

I think the risk if I had to find something was the, the magnitude that they beat earnings.

Expectation is the smallest, it's ever been about 8%.

If you look back a year ago when they reported that first blowout quarter that kicked off the A I hype machine, it was about a 40% beat.

So I think expectations at some point are gonna get too far ahead of what NVIDIA can deliver, but it's not yet.

So it's a, you're not in because of valuation concerns and listen, that, that when you had skeptics on the show, they would bring that up.

What's the, is there a level lou you're more comfortable with?

Look, I think if I had to be rational, right?

The valuation used to be completely out of whack until the company's grown into it.

It's now at like 40 times forward earnings.

If you look at Microsoft, Apple, maybe in the low thirties, I think that makes sense for a multi trillion dollar market cap company because you got to remember right?

There's an opportunity cost.

How far can this market cap go?

I mean, Apple hit three trillion last year.

That's the, it's already two trillion.

You think you move into the, you know, does it join Microsoft in the $3 trillion club.

I mean, it could be, I think it's the leading candidate to be the next $3 trillion market cap company.

But if I had a dollar to put to work today and I want a 10 exit, it's not an NVIDIA.

Right.

It's probably in the smaller cap side of the market.

Or you'd be more conservative if you, I wanna look at the mag seven.

I mean, it's really alphabet is the most reasonably valued at on a, you know, forward basis.

Can I get besides the bottom or top the stock split news?

What you take there?

I think it's a brilliant move psychologically because if you look at the data now, about 40% of trading volumes is retail investors now in the latest couple months.

So this is a great way to psychologically bring in more retail.

I mean, it doesn't change any of the fundamental metrics and valuation calculations.

But if I'm sitting there thinking about buying 100 shares or a share, it's a lot easier, more palatable at, at, you know, 100 bucks versus $1000.

What do you think?

Also, I'm just interested to get your take, not just what this report means for NVIDIA, for Jensen WW.

What are the ripple effects?

Broader market implications?

Huge.

I mean, I think, you know, as tech goes so goes the market, I mean, 40% of the S and P five hundred's gains have been attributed to the tech sector.

Um if not more, if you're looking back historically, it's similar to the.com days.

So we needed this, right?

I mean, this is the leader of the A I trend, but we should have expected it too.

If you look, you've reported on Microsoft's results, Amazon's Google's, we saw the acceleration in cloud revenue which means that the nvidia's chips are getting pulled into the market, right?

That's how that's being facilitated.

So, all right.

So what you've been on the silence and video, you stepped in, you had some concerns about maybe it's too pricey but you wanna play the A I theme lo so where else would you be looking?

I think the more reasonably valued is Microsoft.

I mean, you gotta do your own due diligence.

But the key difference with Microsoft, they can push A I into the market, right?

They're creating products, therefore, they can create the demand.

NVIDIA is getting pulled into the market.

I think Apple's the sleeper A I.

That's interesting.

You, so a Apple is Sleeper because Apple is right.

We've actually talked about it.

A little Apple is kind of perceived as they missed the boat, right?

Everybody either the race is on, they got left behind.

You don't see it that way.

I don't be and look at Tim Cook's history, right?

Everyone thought he was gonna miss the boat after he, he came in to replace Steve Jobs and he just Apple, he continued that tradition.

They're never first or second to market.

They come in later, but then they go, they come in late, but they end up being the leader.

And here's the key differentiator for Apple.

They have 2 billion active devices in use.

If they just iterate and add a little A I somewhere.

It has a magnet magnified impact on royal satisfied group.

Um And also, you know, I always think it with Apple, you know, Tim Cook, he controls, he controls the software, the hardware that ships, right?

It's that vertical integration.

When he decides he wants to make his move, he can, he can flip the switch quickly.

Are you then are you sort of looking ahead to that software show for Apple?

Is that kind of maybe a catalyst you're looking to?

Yeah, I think that's the first step for Apple, but it's gonna continually and perpetually underwhelm people, right?

Apple is in that swing of, of sentiment where people just don't believe they're gonna pull a rabbit out of the hat and become a leader again.

Uh I think this is usually when you is the time to buy an Apple.

Historically, I've, you know, full disclosure, I do own it.

Um Firm doesn't doing investment banking.

But if you look now in the middle of the doldrums of summer, approaching ahead of holiday season is historically been a good time to, to time the market works for Apple during the summer.

Well, any other, so NVIDIA too expensive, any of their chip names.

You find, I really think arm holdings coming back to markets, RE IP O as a public company is attractive, they give you leverage to whatever the next semiconductor trend is.

They're branching into A, I pretty aggressively, they have a recurring revenue model that's much more attractive than a one off sales model than NVIDIA.

Um I think if you wanna go and are you, are you, uh you're obviously saying too you think that evaluation is more attractive to you?

It's a little bit ahead, but I think it's gonna grow.

You're gonna see the gr like just like NVIDIA grew into its valuation.

I think arm has the potential to do that.

It's just a newly traded company again, right?

It, it got taken off the market.

Um If you wanna go, I like tangible A I applications.

So, and this is full disclosure.

We banked it.

I don't own it, but the firm does, um it's heart beam.

So this is a portable uh credit card sized device that can detect heart attacks and their latest data came out that they can do it better than human cardiologists.

So I, I get more excited about small cap undervalued names that are really innovating and practical applications of A I.

And I think that's what, what's really gonna have the biggest gains because we're gonna see how A I really impacts our life saving lives versus helping our kids you know, save a few grades by cheating on it in, in school.

Right.

I mean, this is that, that's not, that doesn't have a long sustainable business behind it, but other applications do lou always love having you.

Strategy picks.

Thank you.

Thank you.