AI is not new, says Short Hills' Steve Weiss

CNBC Television
27 Dec 202307:40

TLDRSteve Weiss from Short Hills discusses the potential of mega-cap stocks in the context of AI and technology innovation. He suggests that while AI is not new, its generative aspect and potential to unlock productivity are significant. Weiss emphasizes the importance of not straying too far from mega-caps for market growth, highlighting Amazon's efficiency improvements and Meta's community strength as reasons for optimism. He also touches on the competitive landscape for e-commerce and cloud businesses, suggesting that while the market is not yet saturated, investors should be cautious and not expect mega-caps to lead performance.

Takeaways

  • 📈 The speaker anticipates a broad market recovery and suggests that mega-cap stocks will play a significant role in reaching the 5400 price target.
  • 🚀 Mention of the possibility that mega-caps may not hit '60 home runs' but could still contribute to a double-digit percentage increase next year.
  • 🤔 The speaker is cautious, stating that victory is not yet declared and that a lot still needs to go right for the market to succeed.
  • 💡 Historical data from 1950 to 1999 is referenced to draw parallels with the current market situation, highlighting the potential for market growth despite higher rates.
  • 🧐 The speaker expresses the view that AI is not new and has been around for years, with companies like Amazon using it for a long time.
  • 🔮 The term 'generative AI' is mentioned, suggesting a new wave or aspect of AI technology that is gaining attention.
  • 🌐 The speaker believes that AI, similar to 5G, has the potential to unlock new opportunities but does not receive as much hype.
  • 🛒 The speaker suggests that Amazon, under Jassy's leadership, has become more efficient and is a good investment, particularly in the cloud business.
  • 📊 There is a discussion about the growth potential of Amazon's marketplace and the importance of looking beyond it for the company's future.
  • 📈 The speaker expresses comfort with Meta as an investment, highlighting its 'stickiness' and the community it has created.
  • 🛑 The speaker notes that competition is increasing for mega-cap companies, which could affect their growth and market dominance.

Q & A

  • What does Steve Weiss believe about the market's potential to reach a 5400 price target?

    -Steve Weiss believes that reaching a 5400 price target would require significant contributions from mega caps, and it implies a double-digit percentage increase. However, he also cautions that a lot has to go right and that one cannot declare victory yet.

  • What is the historical precedent that Steve Weiss refers to when discussing the market's performance?

    -Steve Weiss refers to the period from 1991 to 1999, where despite higher rates and technology innovation, the market was up during six periods. He suggests that past performance could be a prologue to future trends.

  • How does Steve Weiss view the current state of AI technology?

    -Steve Weiss states that AI is not new and has been around for years. He mentions that companies like Amazon have been using AI for a long time, and the current focus is on generative AI and its potential to unlock productivity.

  • What does Steve Weiss suggest as a strategy for investing in AI?

    -Steve Weiss suggests focusing on companies that are driving efficiency and have a strong presence in the cloud, like Amazon. He believes that playing in the cloud and the tools needed for AI is a good strategy, rather than picking the next AI technology.

  • What is Steve Weiss's opinion on Meta as an investment?

    -Steve Weiss expresses comfort with Meta as an investment, noting the optimism around it and the 'stickiness' of its community, which makes it harder for competitors to lure users away.

  • How does Steve Weiss perceive the current state of Amazon's marketplace?

    -Steve Weiss believes that Amazon's marketplace is no longer the growth engine it once was, which is why people are picking it as a top play. He also mentions that competition is coming to the way of mega caps.

  • What is the current global penetration rate of e-commerce according to Steve Weiss?

    -Steve Weiss states that e-commerce represents only 25% of all retail globally, indicating that there is still significant room for growth.

  • What is the current penetration rate of cloud technology in Steve Weiss's view?

    -According to Steve Weiss, cloud technology has only penetrated 25% of the market, suggesting that there is a large potential for growth in this area.

  • Why does Steve Weiss believe that mega caps may not lead performance?

    -Steve Weiss suggests that when companies become very large and successful, they attract competition and regulatory scrutiny, which can erode their market position and prevent them from leading in performance.

  • What does Steve Weiss think about the necessity of owning mega caps for investment performance?

    -Steve Weiss believes that owning mega caps is not necessary for performance. He implies that there are other investment opportunities, such as Uber and United Rentals, that can provide returns without the need to invest in mega caps.

  • How does Steve Weiss view the competitive landscape for cloud businesses like AWS?

    -Steve Weiss acknowledges that there will be competition for cloud businesses like AWS, mentioning that companies like Microsoft and others can compete in this space. He suggests that while these businesses are significant, investors should not necessarily expect them to lead market performance.

Outlines

00:00

📈 Stock Market Predictions and Mega Caps' Role

The first paragraph discusses the potential end of an earnings recession and the expectation of a broader market improvement. It emphasizes the importance of mega cap stocks in reaching the 5400 price target, suggesting that they will contribute significantly to this goal. The speaker is skeptical about declaring victory too soon, indicating that many factors still need to align for success. Historical data from 1950 to 1999 is referenced to argue that even with higher interest rates, the market experienced growth, suggesting a possible parallel to the current situation. The paragraph also touches on the potential for another strong year for the market, assuming the continuation of AI advancements, and the role of companies like Amazon in driving efficiency and innovation.

05:04

🛒 E-commerce and Cloud Market Growth Potential

The second paragraph focuses on the current state and future prospects of the e-commerce and cloud markets. It highlights that e-commerce represents only 25% of global retail, indicating that there is significant room for growth. Similarly, cloud penetration is also at 25%, suggesting a vast opportunity for expansion. The discussion points out that while the marketplace side of Amazon may not be the primary growth engine anymore, other areas of the business, such as AWS cloud services, present funding opportunities. The paragraph also addresses the competitive landscape, noting that as companies like NVIDIA, Broadcom, and AMD grow, they may face increased competition. It concludes by suggesting that while mega cap stocks may not lead performance, they are still integral to a diversified investment strategy.

Mindmap

Keywords

💡Earnings Recession

An 'Earnings Recession' refers to a period where corporate earnings, which are the profits of a company after all expenses have been deducted, decline over a consecutive period of time. In the context of the video, it's used to discuss the potential for the market to recover from such a downturn, indicating a key concern for investors.

💡Mega Caps

Mega caps are large companies with a market capitalization of $200 billion or more. They are often industry leaders and are significant components of stock market indices. The script suggests that reaching a price target of 5400 would require contributions from these large companies, highlighting their influence on market movements.

💡Technology Innovation

This term refers to the creation of new, or the improvement of existing, technology. It's a key driver of economic growth and change. In the video, it's mentioned alongside a historical comparison to the 1990s, suggesting that current technological advancements could have a similar impact on the market as those of the past.

💡Generative AI

Generative AI is a type of artificial intelligence that can create new content, such as images, music, or text, that is similar to content created by humans. The script suggests that this technology is gaining attention and has the potential to significantly impact productivity and other areas.

💡5G

5G refers to the fifth generation of mobile networks, which offer significantly faster data speeds and lower latency compared to previous generations. The speaker compares the potential of generative AI to 5G, indicating that while 5G received much attention, generative AI may have a similar or greater impact.

💡Logistic Spending

Logistic spending refers to the costs associated with the transportation and storage of goods. In the context of the video, it's mentioned that a company (presumably Amazon) has cut back on logistic spending, which is a strategic move to improve efficiency and reduce costs.

💡Prime Video

Prime Video is a subscription streaming service offered by Amazon. It's mentioned in the script as an example of a service where the company has made strategic adjustments, such as cutting back on production costs and introducing advertising, to improve profitability.

💡Cloud Computing

Cloud computing is the delivery of computing services, including servers, storage, databases, networking, software, analytics, and intelligence, over the Internet (the cloud) to offer faster innovation, flexible resources, and economies of scale. The script discusses cloud computing as a growth engine for companies like Amazon.

💡Market Penetration

Market penetration refers to the extent to which a product or service has become established in its market. The script mentions that both e-commerce and cloud computing have only penetrated about 25% of their potential markets, suggesting there is significant room for growth.

💡Competition

Competition in a market refers to the rivalry between different companies striving to achieve the same business objectives. The script discusses the impact of competition on mega cap companies, suggesting that increased competition may challenge their market dominance.

💡Barriers to Entry

Barriers to entry are obstacles that make it difficult for new companies to enter a market. The script touches on the idea that some companies, like NVIDIA, have higher barriers to entry due to their specialized products and services, which can protect them from competition.

Highlights

The speaker believes that the market will recover from the earnings recession and broaden out.

A price target of 5400 suggests that mega caps will contribute to reaching this target.

The potential for a double-digit percentage increase is mentioned for next year, with estimates ranging from 15% to 20%.

There is caution that not everything is certain and victory cannot be declared yet.

Domodore, the Dean of Valuation, is referenced for his historical data and insights.

From 1950 to 1999, despite higher rates, the market had six periods of growth.

The speaker suggests that past performance could be indicative of future trends.

There is a possibility that the AI run might be just starting, contrary to assumptions that it can't continue.

AI is not new; companies like Amazon have been using it for years.

Generative AI is a current topic of interest, with potential to unlock productivity.

The speaker compares the impact of AI to that of 5G, noting it didn't receive as much attention initially.

Amazon is highlighted as a company that has driven efficiency further than Meta.

Amazon's logistic spending and Prime Video production have been cut back, and they are now charging for ads.

The cloud is suggested as the area to play in if one is interested in AI.

Meta is considered sticky and has a competitive community that is hard to replicate.

E-commerce and cloud markets are still growing, with only 25% penetration globally.

The marketplace side of Amazon is no longer the growth engine; instead, other areas of growth are emphasized.

Competition is increasing for mega caps, which could affect their market dominance.

The cost of entry in the cloud business is high, which may deter some competitors.

The speaker suggests that mega caps may not lead performance, citing Microsoft as an example.

It is not necessary to own mega caps to achieve performance in the market.

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