NVIDIA fell 14% last week, but portfolio managers say that’s OK, as they expect revenue and the stock price to double over the next few years – NVIDIA (NASDAQ:NVDA)

NVIDIA Corporation NVDA Macroeconomic concerns caused the company’s shares to fall about 14% in the week ending Sept. 6. On Friday, Dan Niles, portfolio manager and founder of Niles Investment Management, spoke about the near- to medium-term outlook for leading artificial intelligence companies and the tech industry itself.

Why tech is sluggish: Sentiment toward tech stocks is weakening because it’s becoming more obvious to investors that companies are spending heavily on AI, and revenue forecasts are falling even as AI spending increases, Niles said in an interview with CNBC.

Quarterly reports from the big three hyperscalers (Alphabet, Inc.). Google GoogleMicrosoft MSFT and Amazon, Inc. Amazon He noted that the data showed companies were increasing the amount they plan to spend on AI infrastructure, “which means at some point you’re spending a lot of money, but you’re going to want something in return,” he added.

To back up his argument, Niles noted that Nvidia’s revenue growth surged 80% year over year after COVID-19, but then the hangover set in as demand began to slow: Those three big hyperscalers started to slow spending, Nvidia’s revenue growth fell 20% and its stock price fell 66% in digestion, he said.

Spending on AI is happening much faster than internet infrastructure, Nile said. This is evidenced by the fact that NVIDIA’s revenue has increased fivefold since the launch of ChatGPT, he said. Just like post-COVID, things are starting to slow down for the big internet companies that were investing in infrastructure, and numbers going forward are starting to drop, he added.

Is it time to diversify out of tech? Niles said he thinks there’s still plenty of room to invest. “There are steps to overcome. I firmly believe that over the next few years, Nvidia’s revenue will double from current levels and the stock price will double as well,” he said.

As for areas to invest in outside of the tech sector, Niles said consumer staples, utilities and communication services could be their time to shine once the Federal Reserve starts cutting interest rates. He noted that since the S&P 500 peaked on July 16, the index has fallen about 5%, while the equal-weighted S&P 500 is down about 70 basis points. That compares to a roughly 11% drop in the Magnificent Seven, he said.

“So I think investors need to think about whether they have the wind in their sails,” Niles said. The portfolio manager said rate cuts are definitely coming, but the only uncertainty is how many cuts there will be between now and the end of the year. He added that he expects more rate cuts next year.

Niles also said he doesn’t expect a recession because job openings outnumber people looking for work. “The risk in a service-driven economy is that you could go into a recession in that kind of environment,” he said.