Wall Street has been puzzled by the US economy’s continued recovery in the face of aggressive rate hikes from the Federal Reserve, while some still expect a recession soon.
But Neuberger Berman chief portfolio manager Steve Eisman is a force in financial markets and thinks the answer is clear: doomsayers are wrong as the race for artificial intelligence and the development of infrastructure projects drive the economy.
“We’re succeeding, and I think the only conclusion you can come to is that the US economy is stronger than it’s ever been in its history,” he told CNBC on Thursday.
Eisman, whose famous bet against toxic mortgages leading to the Great Financial Crisis exposed The Big Shorthe added that the next phase in the technology narrative will be consumers buying new AI-enabled phones and laptops.
That means Apple, which recently introduced a series of new AI features, will see a major renewal cycle for customers upgrading their iPhones, he predicted.
Eisman added that his company has begun researching which other stocks will benefit from this AI trend but stressed that investors should stick with any Apple stock they own.
“Definitely hold on to your Apple position,” he said. “It’s very important to the whole story.”
Microsoft and Google parent Alphabet, which develop separate AI technologies, are also “mainstream,” but Eisman also raised the question he was trying to answer.
One attractive theory posits that if AI is as successful as people expect, the cost of creating software “will skyrocket,” meaning the competitive advantages other companies have won’t be insurmountable, he said.
“So you can make the argument that hardware updates will continue and that some software components will interfere,” he added.
In other words, tech hardware companies supplying the AI sector should continue to grow, but not so much in software stocks.
Nvidia’s big meeting reflected the latest shift in hardware stock. Shares of the AI chip leader are up 166% year to date and up more than 200% since this time last year, making it a $3 trillion company that has accounted for more than a third of the S&P 500’s gains this year.
And Nvidia’s quarterly earnings show no signs that the rush to stock up on AI chips is slowing down.
But relying too much on one stock also represents a big risk, Apollo chief economist Torsten Sløk warned.
“Such a high concentration means that if NVIDIA continues to rise, then things are good,” he wrote in a paper on Wednesday. “But if it starts to go down, the S&P 500 will be hit hard.”
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