Nvidia (NVDA) shares have fallen 9% over the past five trading days, dragging the tech-heavy indexes (^DJI, ^IXIC, ^GSPC) down as well.
Yahoo Finance's The Morning Brief welcomes Brad McMillan, CIO of Commonwealth Financial Network, to discuss recent developments in the technology sector and leading chipmakers.
“If you look at the underlying trends, there are several companies emerging behind Nvidia in the artificial intelligence space. [AI] “The market is expanding, but at the same time, NVIDIA is still incredibly well-positioned,” McMillan explained. “So, while we understand there will be some setbacks, we're not necessarily worried in the short term as long as the trends remain favorable, and other companies give us new opportunities going forward.”
McMillan also discusses opportunities in small-cap stocks (^RUT) and the Federal Reserve's interest rate approach to inflation.
For more expert insights and the latest market trends, click here to listen to this entire episode of Morning Brief.
This post was written by Luke Carberry Morgan
Video Transcript
These stocks were trending lower at the start of trading and are currently down about 1.8%, so we'll be keeping an eye on the video.
Over the past two days, these giant stocks have fallen by more than 6%, dragging the index down with them.
We can see that videos have dropped by nearly 5% in the past two days.
Our next guest continues to be a top pick despite all of this and he joins us to discuss it is Brad McMillan.
He is the Chief Investment Officer at Commonwealth Financial Networks. Brad, thank you so much for joining us today.
I just want to get your broader perspective on positioning in the technology space right now.
What are you seeing?
How would you categorize the positioning you see in the technology sector?
What we've seen is Mattie is seeing some big gains in some of the major names, and of course we've been talking about that all morning, but at the same time, we're also starting to see a little bit of a pullback, and that's OK because we've seen insider selling. It makes sense.
But looking at the underlying trends, there are several companies emerging under NVIDIA in the artificial intelligence market.
But at the same time, NVIDIA still holds a surprising lead.
So, you know, as long as the trends continue to be positive and other companies continue to give us new opportunities, a little bit of a pullback in the short term is not necessarily something to be worried about.
So I don't see this as an NVIDIA story.
I see this as a continuing growth story for the industry as a whole.
How do we differentiate between NVIDIA's tech story and the orders coming in from the B2B side based on the anticipation of how generative AI will be utilized, and the consumer tech story within companies like Apple, which is looking to continue its own recovery over the course of this year, given the slight delays we saw at the start of 2024?
The story continues
Now, if you look at NVIDIA, you're going to stick with them.
For example, they sell picks and shovels to miners, who then go out and try to dig for gold.
So I think it's an iterative process of looking at business-to-business deals and then quickly leveraging them, because obviously a company like Apple wants to stay ahead of the consumer and pickup demand from the consumer leads to that.
That is, to the extent that Apple can make it happen.
And of course, as you said, when artificial intelligence works for consumers, I would bet on Apple, Microsoft and IBM.
That would drive demand even higher, driving demand for the underlying chips in the first place.
So I see this as a virtuous cycle.
got it?
Now, tell me about how lowercase and uppercase work within that circle.
Brad, you mentioned last weekend that Russell was starting to lean slightly more towards the overall market and into competitive territory, is this evidence of the market expanding or are you just exaggerating it at this point in the hopes that the market will expand in this market?
Well, I would love to see the market expand as well.
So hope is certainly part of this picture.
But at the same time, when you look at the attention being paid to larger stocks again, when you look at NVIDIA, people are starting to look at that and say maybe there are opportunities outside of technology.
And I think that's a good thing.
So, one of the things that I think is undervalued is the necessities of life.
What we see here is a continued rise in employment, wages and spending power, with many businesses quietly continuing to grow.
So I think we are seeing an expansion, and just because I hope so doesn't mean it's not true.
Brad, inflation is likely to continue to hover in the 3-4% range this year.
So, we're obviously watching that now and trying to get closer to the Fed's goals.
What obstacles could there be to actually staying within your target range?
Well, sorry, but I think that's the wrong question.
You know, we've been saying, “It's going to go down again.”
We have been saying that we will return to the Fed's targets.
We've been saying this for a couple of years now — a lot of people have said this, but I haven't said it for a few years — and we really don't see any signs of this continuing to go down.
You see, for most of the past year, that has remained the status quo.
And if you look at this from a federal perspective, you have to see evidence now that it is going to go down because it hasn't gone down.
And that changes the calculus for the Fed's decision-making.
So I look at it and the question is, why is there any doubt at this point?
There are a variety of reasons why, but the question is, why assume it will go down just because we haven't seen it?
Brad, that's the question for you, because the Fed hasn't given us any core points.
So we're all kind of wearing a cloak over our eyes trying to guess what the Fed is going to do or not do, because the Fed relies on data. They relies on data.
In the absence of any central talking points from central banks, where can we find clear answers?
Look, I think the Fed has actually been very clear, because, as you say, they've said all along that they rely on data.
But that begs the question: What kind of data are they looking at?
But let’s get back to their statutory mandate: employment and inflation.
So what they need now is for inflation to go down and employment to go up, and employment is going up, but inflation is still high.
So there's really no reason to cut back.
As I've said all along, the question is when will the Fed cut interest rates?
I think that's the wrong question.
I guess the question is why cut back, and there's no reason to cut back until job growth slows or inflation falls.
Brad McMillan, Chief Investment Officer, Commonwealth Financial Network.
Thank you so much for your time this morning.
Thank you, Brad.
I'm happy to be here.
