Wall Street has been concerned about the continued resilience of the US economy in the face of aggressive rate hikes by the Federal Reserve, with some still expecting a soon recession.
But Steve Eisman, senior portfolio manager at Neuberger Berman, is bullish on financial markets and thinks the answer is clear: the doomsayers are wrong as the race in artificial intelligence and the proliferation of infrastructure projects drive the economy.
“We’re just going through it, and I think the only conclusion you can draw is that the American economy is more dynamic than it’s ever been in its history,” he told CNBC on Thursday.
Eisman, whose famous bet against toxic mortgages was portrayed in the run-up to the Great Financial Crisis The big short oneadded that the next phase in the technology story will be consumers buying new AI-enabled phones and laptops.
That means Apple, which just unveiled a raft of new AI features, will see a huge refresh cycle with customers upgrading their iPhones, he predicted.
Eisman added that his firm has begun researching which other stocks will benefit from the AI trend, but insisted that investors should stick with any Apple stock.
“Definitely stand by your position at Apple,” he said. “It’s too central a figure in the whole story.”
Microsoft and Google parent company Alphabet, which are developing separate AI technologies, are also “core interests,” but Eisman has also raised a question he’s trying to answer.
One intriguing thesis posits that if AI is as successful as people expect, the cost of creating software will “implode,” implying that the competitive advantages some companies have won’t be as impenetrable, he said.
“So you can argue that the hardware revaluation will continue and some parts of the software will deteriorate,” he added.
In other words, technology hardware companies supplying the AI sector should continue to grow, but not so much in software stocks.
Nvidia’s massive rally is an example of the recent shift into hardware stocks. Shares of the AI chip leader are up 166% so far this year and are up more than 200% from this time a year ago, making it a $3 trillion company with more than a third of will account for the S&P 500’s gains this year.
And Nvidia’s quarterly results show no sign of the rush to stock up on AI chips abating.
But relying so much on one stock also comes with great risk, Apollo chief economist Torsten Sløk warned.
“Such a high concentration implies that if NVIDIA continues to rise, all is well,” he wrote in a note on Wednesday. “But if the price starts to fall, the S&P 500 will be hit hard.”
This story originally appeared on Fortune.com
