Jim Thorne, Chief Market Strategist at Wellington-Altus, spoke with Quartz for the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.
ANDY MILLS (AM): You say AI is going to be a bubble? Yes. We’re not there yet. How will we know and how do we prepare for that as investors?
JIM THORNE (JT): To me it will be when earnings estimates by the end of the decade get outlandish.
AM: Okay. I feel like every day they’re setting a new, higher expectation.
JT: Right. But, but Andy, beginning of this year, they had earnings go through Nvidia down, down next year. Now they’ve got it up and now they just shifted to 26. When they’ve got it like this going out to infinity and beyond. And they will. We’re just not there. And when they do, then guess what? Tap, you know, get the heck out. Tap out, get the heck out. You’ve made a lot of money. Drive on. I think we’re possibly, to the end of the decade, going to be okay. It’s going to be bigger than people expect. And I really do think that it’s going to become societal. We’re gonna have the Luddites. Right. ‘Oh, everybody’s gonna be replaced by AI’ and what have you. Yes. Right. We’re gonna have Washington try to regulate it as they should. Right. So we’re still very, very, very early on, and until we hear this time, it’s different from consensus. Right. As opposed to, you hear people every day going, oh my God, Nvidia’s making a new high. And oh my gosh, Apple’s up 10% in a month. I mean, come on, Andy. Going to a brand new Apple developer’s day. Nobody should have been surprised that Apple is going to roll out a new iPhone that’s AI enabled. Really? Come on. Really? I mean, this is what we do, right? So it’s all good. And then it’s positive for the United States because it’s the leading economy and it’s positive for investors ‘cause look at how many large, big multinational, well-managed companies are embracing this. And we’re still early.
Read more: The AI craze is no dot-com bubble. Here’s why
AM: AI is gonna be big. What stocks would you be buying if you were a retail investor right now?
JT: The large cap. So go down a list. So I like, I like Nvidia, Apple, I think Dell computers is interesting. Microsoft, Meta, Lam Research, Micron. These are all big US multinational companies. It’s the winners. It’s the creme de la creme. This is completely different than the 1990s when we were valuing companies on clicks. This is in some sense, easier. And, look, let’s be honest, the problem that investors have and we kind of glanced over it, is that 3% of the stocks, 2.39% to be exact, generate, throughout the decades, all the returns. That speaks towards not having an excessively diversified portfolio. When you look at Warren Buffet in Berkshire Hathaway, he has a big- yeah, he sold off Apple, but he still got like, I don’t know, last time I checked, 45% of his portfolio. So it’s diversification in this period of time, you need to be very careful. And if you’re unwilling to do it, then you just buy the NASDAQ 100 or you buy the S&P 500. It’s really simple.
AM: You mentioned a lot of big tech names that have had quite a run the last couple years because of AI. You still think people should be putting their money in these big tech names because they’re the winners regardless? Or is this blind betting?
JT: So eventually what’s gonna happen is we’re gonna model Nvidia’s cycle out. We’re gonna model the cycle out. So, and we’re just gonna pivot. So we really haven’t modeled out the effect of the the refresh cycle in Apple or Dell. And so it’s just gonna continue to move. We’re gonna need more power consumption. So companies like Eaton, right? There are companies, Quanta. We need power consumption. Copper’s a great play. We’re gonna need uranium, uranium, nuclear power. So what’s gonna happen is as the theme gets bigger, more pervasive, it just permeates throughout the indexes or the markets because that’s where the earnings growth is.
AM: Well, thanks a lot Jim.