AI stocks: What's 'real' vs 'speculative'

Hefty valuations for AI-related stocks are raising some eyebrows on Wall Street.

DA Davidson's head of technology research, Gil Luria, divides investors' AI plays into two categories: companies that are "responsibly" building AI compute based on "real demand" and others that are using "very expensive debt" and "related party transactions" to finance speculative AI infrastructure.

Luria places Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG, GOOGL), and other Big Tech companies in the first category, while Oracle (ORCL), Oklo (OKLO), Broadcom (AVGO), and more are part of the "speculative" group.

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Video Transcript

00:00 Speaker A

is there a bigger question to ask and where do you stand on that bigger question of where tech valuations are right now? You know, you've heard it all. We've talked about it before, the circularity of the spending with OpenAI at the center. How how are you thinking about it right now?

00:24 Speaker B

There's two categories. There's the real companies that are doing real work and are actually not trading at a very high multiple. Microsoft, Amazon, Google and Nvidia. They are building an AI infrastructure and they all told us last week that they saw a positive inflection point in AI demand. There is uh increasing need for compute and those companies are responsibly building out that compute.

00:54 Speaker B

There's a whole other category of bad behavior, using debt to finance, uh very expensive debt to finance data center build out, related party transactions where you're investing in your customer and then helping them borrow even more money to buy more of your product. Both things are happening simultaneously, but again, I'd point out Microsoft, Nvidia, Meta, Google, all trading, Amazon, all trading at less than 30 times earnings.

01:25 Speaker B

Those are attractive valuations for companies that have seen a positive inflection point. As you start getting into the some more speculative bets, your Oracle, your Coreweve, your Oklo, those are extraordinary even your AMD and and and um and Broadcom. Those are extraordinarily expensive on what is much more speculative, much more reliant on the ability to raise debt capital, expensive debt capital that may or may not be available for very long.

01:54 Speaker B

So those two things are coexisting. It's important to focus on the real companies doing the real build out based on real demand.

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