AI is not new, says Short Hills' Steve Weiss

CNBC Television
27 Dec 202307:40

TLDRSteve Weiss from Short Hills discusses the potential for the market to recover from an earnings recession, suggesting that mega caps will play a significant role in reaching the 5400 price target. He emphasizes that while AI is not new, generative AI has the potential to unlock productivity similar to 5G. Weiss highlights Amazon's efficiency improvements and suggests investing in cloud technology and tools as a way to play in AI. He also touches on the resilience of Meta's community and the growth potential in e-commerce and cloud sectors, which are still underpenetrated.

Takeaways

  • 📈 The speaker anticipates a double-digit percentage increase in the market next year, suggesting a potential rise to targets set by the most adventurous investors.
  • 🚀 Despite the optimism, caution is advised as there are still many uncertainties, and victory has not yet been declared in the market's performance.
  • 🤖 AI is not a new concept; it has been around for years, with companies like Amazon using it extensively, but there's a new wave of generative AI that is gaining attention.
  • 💼 The speaker suggests focusing on cloud technology and the tools needed to play in the AI space, highlighting Amazon as a prime example due to its efficiency and cost-cutting measures.
  • 📉 Amazon's marketplace is no longer seen as the primary growth engine, which is why some are considering it a top play, despite the desire to buy in at a lower price.
  • 🎯 There is a sense of comfort with Meta (Facebook's parent company) due to the 'stickiness' of its community and the difficulty for competitors to replicate its success.
  • 🛒 E-commerce and cloud computing are still in relatively early stages of market penetration globally, with significant growth potential remaining.
  • 💰 The speaker argues that investors are not paying a premium for the marketplace aspect of e-commerce businesses, indicating a shift in growth expectations.
  • 🏆 The discussion points to the challenges faced by mega-cap companies due to increased competition and the high barriers to entry in sectors like cloud computing.
  • 🚗 The mention of BYD producing more electric vehicles than Tesla highlights the competitive landscape and the potential for disruption in the EV market.
  • 🤝 The speaker emphasizes that owning mega-cap stocks is not the only path to performance, suggesting that there are other opportunities in the market.

Q & A

  • What is the speaker's opinion on the potential for the stock market to reach the 5400 price target?

    -The speaker believes that reaching the 5400 price target is possible but not guaranteed, suggesting that it would require mega caps to contribute and that there is still much that needs to go right for this to happen.

  • What does the speaker imply about the role of mega caps in the stock market's performance?

    -The speaker implies that mega caps play a significant role in the stock market's performance, as they would need to contribute for the market to reach certain price targets.

  • What is the speaker's view on the current state of AI technology in the market?

    -The speaker suggests that while there is a lot of hype around AI, it is not new and has been around for years, with companies like Amazon using it for a long time.

  • How does the speaker compare the current technological innovation to the period from 1991 to 1999?

    -The speaker draws a parallel between the current technological innovation and the period from 1991 to 1999, noting that despite higher interest rates at the time, there were still periods of market growth.

  • What does the speaker think about the potential of generative AI?

    -The speaker believes that generative AI has the potential to unlock new opportunities in terms of productivity and other areas, comparing its significance to that of 5G technology.

  • Why does the speaker consider Amazon to be a good investment in the context of AI?

    -The speaker views Amazon as a good investment because of its efficient use of AI to drive productivity, its logistic spending cuts, and its expansion into cloud services and advertising.

  • What is the speaker's opinion on Meta as an investment?

    -The speaker expresses comfort with Meta as an investment, noting the company's ability to create a sticky community that is hard to compete with.

  • How does the speaker perceive the current state of the e-commerce market?

    -The speaker believes that the e-commerce market is still in its early stages, with only 25% of global retail commerce being conducted online, suggesting that there is significant room for growth.

  • What does the speaker suggest about the cloud computing market?

    -The speaker indicates that the cloud computing market, like e-commerce, is also significantly underpenetrated at 25%, implying that there is a large potential for growth in this sector.

  • What is the speaker's view on the challenges faced by mega caps in the market?

    -The speaker acknowledges that as companies become more successful and profitable, they attract more competition, which can pose challenges to their continued dominance in the market.

  • How does the speaker respond to the idea that owning mega caps is necessary for investment performance?

    -The speaker disagrees with the notion that owning mega caps is essential for performance, suggesting that there are other investment opportunities that can yield good returns without relying on mega caps.

Outlines

00:00

📈 Stock Market Recovery and Mega Cap Contribution

The speaker discusses the potential for the stock market to recover from an earnings recession, suggesting a broadening out effect. They express skepticism about a 5400 price target, emphasizing the importance of mega cap stocks in reaching such a milestone. The conversation touches on the possibility of a double-digit percentage increase in the next year, with a range of 15% to 20% being speculative. The speaker also cautions against complacency, indicating that victory has not yet been declared. Historical data from 1950 to 1999 is referenced to argue that market conditions can vary, and past performance is not necessarily indicative of future results. The discussion also briefly touches on the potential of AI and generative AI technologies, comparing their current impact to that of 5G, and suggesting that efficiency improvements in companies like Amazon could be a key area to watch for investors interested in AI.

05:04

🛒 E-commerce and Cloud Market Penetration

The second paragraph focuses on the current state of the e-commerce and cloud computing markets. The speaker notes that e-commerce represents only 25% of global retail, suggesting that there is significant room for growth. Similarly, cloud computing is also noted to be at a 25% penetration rate. The speaker argues that investors should not expect the marketplace aspect of e-commerce to be the primary growth engine for companies like Amazon, but rather to look at other areas of growth within these tech giants. The conversation also addresses the challenges faced by mega cap companies due to increased competition and the potential for market share erosion. There is a mention of the competitive landscape, including companies like NVIDIA, Broadcom, AMD, and Microsoft, and the difficulties that arise as these companies become more successful and attract more competitors. The speaker concludes by stating that while mega cap stocks can still perform well, investors should not necessarily expect them to lead in performance.

Mindmap

Keywords

💡Earnings Recession

An 'earnings recession' refers to a period where corporate earnings, which are the profits a company makes, decline. In the context of the video, the speaker suggests that we might be coming out of such a period, indicating an expectation of improving corporate profits. This is significant as it sets a positive tone for the discussion about market performance.

💡Mega Caps

Mega caps are large market capitalization companies, typically those with a market value of over $200 billion. In the script, the mention of mega caps is in relation to the S&P 500 price target of 5400, implying that significant market growth is expected to involve contributions from these large companies. They are considered foundational to the market's overall performance.

💡Double Digit Percentage Increase

This term refers to an increase of at least 10% in a particular metric, such as stock prices or earnings. The speaker uses this to suggest potential growth for the market next year, indicating an optimistic view but also acknowledging that there are uncertainties and that the market has not yet 'declared victory'.

💡Technology Innovation

Technology innovation refers to the creation of new technologies or the improvement of existing ones. The script contrasts the current market situation with the period from 1991 to 1999, highlighting that technology innovation was a key factor then and is likely to be so again, suggesting a cyclical pattern in market performance related to technological advancements.

💡AI

AI stands for Artificial Intelligence, which is the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. The speaker mentions that AI is not new and has been used by companies like Amazon for years. However, the script also discusses 'generative AI', indicating a new wave or evolution of AI technology that could have significant implications for productivity and business operations.

💡5G

5G is the fifth generation of mobile networks, offering faster speeds and more reliable connections than its predecessors. The speaker compares AI to 5G, suggesting that AI has the potential to unlock new opportunities similar to how 5G has done in the telecommunications sector. This comparison highlights the transformative impact that AI could have on various industries.

💡Amazon

Amazon is a multinational technology company known for its e-commerce platform, cloud computing services, digital streaming, and artificial intelligence. The script discusses Amazon's use of AI to drive efficiency and its strategic moves in logistics and Prime Video. The speaker suggests that Amazon could be a good investment play in AI, particularly in the cloud sector.

💡Meta

Meta is a term used in the script to refer to Meta Platforms Inc., formerly known as Facebook Inc. The speaker expresses comfort with Meta as an investment, possibly due to its established community and 'stickiness', which refers to the platform's ability to retain users and their engagement.

💡E-commerce

E-commerce, short for electronic commerce, involves buying and selling goods or services using the internet, as well as the transfer of money and data to execute these transactions. The script points out that e-commerce is only 25% of all retail globally, indicating that there is significant room for growth in this sector, which could be a key driver for companies like Amazon.

💡Cloud

In the context of the script, 'cloud' refers to cloud computing, which is the delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the internet. The speaker notes that cloud computing is similarly underpenetrated at 25%, suggesting that there is a large potential for growth in this area, which could benefit companies like Amazon and Microsoft.

Highlights

The speaker believes the market is coming out of an earnings recession with a potential for a double-digit percentage increase next year.

Mega caps are crucial for the market to reach the 5400 price target, implying their significant role in market growth.

The speaker is cautious, stating that victory cannot be declared yet for the market's performance.

Domodore, the dean of valuation, is referenced for his numbers and insights on market performance from 1950 to 1999.

Technology innovation and higher rates in the past are compared to the present situation, suggesting a potential precedent for the current market.

AI is not new; it has been around for years, with companies like Amazon using it for a long time.

Generative AI is mentioned as a key area, with the potential to unlock significant productivity gains.

The speaker is not interested in picking the next AI technology but rather in companies that are driving efficiency, like Amazon.

Amazon's efficiency improvements under Jassy's leadership are highlighted, including cuts in logistic spending and Prime Video production.

The cloud business is identified as a growth engine for companies like Amazon, rather than the marketplace side.

Meta is considered sticky and a top play due to the community it has created, making it harder for competitors to enter.

E-commerce and cloud markets are still in the early stages of penetration, with significant growth potential.

The speaker suggests that buying into mega caps is not solely for the marketplace or e-commerce business but for other growth engines within the company.

Competition is increasing for mega caps, with new entrants like Temu and Shein achieving significant revenue.

The barriers to entry in the cloud business are discussed, with the potential for erosion by competitors like Microsoft.

The speaker argues that while mega caps have made a lot of money, investors should not expect them to lead performance.

The importance of not needing to own mega caps to achieve performance is emphasized, with other companies like Uber and United Rentals mentioned.

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