Here's why we're not in an AI bubble: WisdomTree CIO

Nvidia (NVDA) is preparing for a 10-for-1 stock split on Friday after the market close, a move that follows the chip giant's surpassing a $3 trillion market cap. WisdomTree Global CIO Jeremy Schwartz joins Market Domination to discuss the AI race and what investors should expect from the stock split.

"We're very much believers in the AI story. We think the technology is really going to help the economy," Schwartz says. He believes that as the technology continues to develop, there will be broader participation benefitting companies across all kinds of sectors.

While many fear an AI bubble, he explains that the valuations of tech companies are not at the levels they were in the year 2000. Tech remains more expensive than other sectors. However, he notes that earnings grow at a much faster pace.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl

Video transcript

Investors on edge with the major averages, little change in today's session ahead of Friday's monthly jobs report also playing into the weakness, the euphoria over Nvidia's $3 trillion market cap fading a little bit, the stock down to about about 2% with an hour left in the trading day.

Joining us now is Jeremy Schwartz Wisdom Tree, Global Chief Investment Officer, Jeremy.

Thank you for joining us here.

We've got a lot of news to dissect including an ECB decision and the big labor report tomorrow.

But investors want to know about A I and we got this big invidious stock split tomorrow.

Let's just tackle that first.

What are your thoughts here?

You know, we're very much believers in the A I story.

We think the technology is really gonna help the economy.

I think we're so early in the phases of that transfusing through the economy.

So you gotta see, I mean, it's gonna have big impacts on interest rates and productivity, what that's gonna mean?

Um So we're believers.

Now, the question is, is gonna be the only winner is the real question.

You know, they've been for sure the best winner is all these big companies make investments in the chips and they are for sure critical today as you keep talking about.

Uh but we do think there'll be broader participation, we think more companies will benefit.

And so as you look ahead, you could say, we think there would be a broadening of the rally, but you know, we're believers in the technology and we don't think that tech is in a bubble like 2000.

You hear a lot of people worrying about valuations.

Uh And we, we don't think they're at 2000 levels.

We actually think tech as a whole is only half the multiple of what it was in 2000 and, and much more reasonably priced than it was back then.

Well, um so why ex expand a little bit upon why you don't think it is in a bubble?

Well, back then you had uh nine stocks, triple digit pe some of the largest stock sp 500 had hundreds of pe ratios, Cisco in the hundreds of pe S NVIDIA is expensive, but it's still around 40 times next year earnings.

So it would be considerably higher at that sort of cisco in 2000 type levels now, you know, so the S and P as a whole, the S and P tech sector was well, in the sixties today, you're 60 times forward earnings today, you're 30 times forward earnings.

So yes, it's more expensive than say the non tech call it the non tech might be at 1718 times earnings and tech is at 30 but they're growing their earnings twice as fast.

You know, the projected earnings even are growing twice as fast.

So, you know, when you look at the long term next called 3 to 5 years earnings growth for the tech leaders over twice the growth rate expected than the non tech.

So that multiple premium is warranted.

If they can deliver those earnings, if they really have a slowdown in earnings, then obviously there'll be be some correction there.