Nvidia: Investors should be 'very cautious' amid AI trends, says strategist

Annandale Capital Founder and Chairman George Seay joins Yahoo Finance Live to discuss Nvidia's market cap briefly topping a $1 trillion. Seay breaks down Nvidia's move and why investors should still remain cautious when it comes to AI.

Video Transcript

JULIE HYMAN: Well, despite Nvidia briefly joining the trillion club, alongside tech giants like Apple and Amazon, our next guest is warning investors to be skeptical and cautious. George Seay is Annandale Capital founder and chairman. He's with us now.

I mean, trillion dollars is a nice round, big round number, right, that catches a lot of people's attention, George. But what do people need to think about when they're looking at companies of that size, and whether now is the time to get in?

GEORGE SEAY: Hi, Julie. Good morning. And the old cliche discretion is the better part of valor. Sometimes it pays to be discreet and cautious and careful. And we've had quite a rally in the NASDAQ in particular this year. It's been a very concentrated rally in high growth tech stocks after a big correction last year.

And you have to be skeptical after a move of this magnitude, especially with all the headwinds against the economy and with the Fed still at war with interest rates and inflation. And I think it's a really good time to take a pause and reflect and make sure your portfolio is well positioned against what's going to come in the next four to five months. And I think we're overdue for a correction in the market, especially in growth stocks. I'd be very cautious right now if I were an investor.

BRAD SMITH: Artificial intelligence may have won this earnings season, but how can investors make sure that their portfolio, I guess, wins out over the long term as the actual beneficiaries of artificial intelligence, and some of the capital that's been thrust towards it become a little bit more clear over time?

GEORGE SEAY: Hi, Brad. Well, that's a really good question. And I think that the winners long term are well identified by the market. Nvidia is going to be a big winner. Buying it right now, though, after the move it's had I think, would be unwise, frankly. And I think you've got to look at some of the others like Google and Amazon and some of the other beneficiaries of this movement.

And basically, spread your bets, and have a good portfolio that's diversified across all the various companies that are going to benefit from this incredible capital investment move in AI, and how it's going to affect all the various aspects of the economy.

It was interesting to me to see Qualcomm come up and say, hey, we're a beneficiary of this too. Everybody wants to get in the game because it's basically a popularity contest right now. But is Warren Buffett and Benjamin Graham said many, many years ago, if the market is over the long term, it's a weighing machine, and you've got to have substance to go along with the hype.

And that's why it pays to be diversified across a whole lot of companies and not just one or two, because you want to bet on a wide variety of companies that are going to be playing in this field and not try to pick the one or two winners because that's too risky.

JULIE HYMAN: Yeah, I mean, that's another example in terms of the popularity contest. We spoke earlier to the HPE CEO, that stock is going down even though they also touted the potential for AI. So when you're looking at a basket, right, if you're trying to take advantage of it through being diversified, how do you even pick the basket, right? Do you just kind of buy all the tech or all of the NASDAQ 100 say, and just bet that enough of them are going to benefit from this trend?

GEORGE SEAY: Well, I think you need to weigh your bets accordingly. And I think that larger than a 20% allocation in this space would be too large. And I think that what you just said about the NASDAQ 100 would be a really good way to do it, or take 5 to 10 of best of class companies that are going to be involved in this space. Something like that.

You don't want to be over concentrated. You want to be well diversified, but exposed because this is going to be a big trend in the future. And investors need to have exposure to this. But I would say right now is not the right time to get started. If you're not already in it, I would be patient and wait for a correction because you will get it this year for sure.

BRAD SMITH: What are some of the areas where investors in the mid of-- in the midst of all the AI hype perhaps are missing opportunities that are still right in front of our eyes?

GEORGE SEAY: Well, that's a great question from an investment standpoint, and that's the one we've been asking at my firm for quite a few months now, in particular. And where we're really focused is energy and financials. They have been completely poured out this year in favor of tech and growth. And we think they're incredibly cheap and incredibly under loved.

And investors want a case for shorting them or selling them. And we think that's going to change at some point. So we've been actually very gently, slowly, patiently adding in that space. And we haven't been selling an AI or tech, but we've been holding our firepower, so to speak, and just standing on our positions we already have. So we're looking at areas that are unloved and underappreciated and a lot less expensive right now.

JULIE HYMAN: Let's expand on energy a little bit for a moment because that group in particular, lately has really been beat up, as we've seen the slide in oil prices. Energy stocks have followed suit. You say at some point, people are going to come back around to it. What's going to cause them to come back around to it?

GEORGE SEAY: I think inflation is not dead. I think the inflation is going to come back, and I think the prices of these commodities are too low for the companies to make a meaningful enough profit, especially in natural gas. And I think that you're going to have supply come off tremendously in the next three to six months. And I think the price of the commodity is going to go up and the stocks are going to go up with it.

And I don't know where the turn is, but we're pretty close at this point. So I think you want to buy fear and sell greed. And I think there's a lot of fear and Sturm und Drang, so to speak, from a German standpoint in the energy space. And I want to buy that.

JULIE HYMAN: George, thanks for spending some time with us this morning, George Seay is Annandale Capital founder and chairman. Appreciate it.