Nvidia has been 'overcompensating' against multiple headwinds, analyst says

Constellation Research Principal Analyst and Founder Ray Wang joins Yahoo Finance Live to discuss tech stocks and how Nvidia has stood out within the sector.

Video transcript

SEANA SMITH: Ray, it's great to see you again. Dan was just talking about some of those individual movers here, some of the larger players within the tech space that have clearly had a very troublesome 2022. Today, looking at the NASDAQ, now it's below 11,000. I know that was a level-- a key level that you were watching. What's your takeaway from the selling that we're seeing once again today?

RAY WANG: Yeah, it's a bad day when everyone's talking about you're just a little bit about your 52-week low. And that's kind of what we're talking about at the moment. And a lot of it's really the rate hikes. There doesn't seem to be the Fed-- it doesn't seem like it's going to pivot away from the strategy. They're definitely taking the Volcker approach and going head on, trying to address this.

The challenge is it's really a policy issue. It's not really a Fed policy. They can't do much for headline inflation, which is food and energy. And now we've got wage inflation that's picking up as a result. So I think we've got some time here. Before that, we're going to see some rates dropping. But this is also, another way to look at it, it is still a good time to buy. I know it sounds crazy, but I'm looking at companies in the MATANA stocks that are large double digit operating margins, that have a lot of cash on hand. And a number of those stocks come into mind.

RACHELLE AKUFFO: And we love that MATANA acronym there. What about the weakest performers in that group? Who are you most concerned about?

RAY WANG: Yeah, the one I'm most concerned about is Nvidia, and it's really about trying to get the chip demand back into space. Part of the reason is they had a real good run when there was a lot of cryptocurrency mining that was going on. They had a good run when there's a lot of work in terms of gaming, and of course, when data centers are doing well. I don't think the data center piece is going to collapse. I think the data center piece is actually growing as more and more people move their workloads into the cloud.

The GPU thesis is still very strong. It's just that they've been compensating for a lot of headwinds, anything from regulatory environment in terms of chip export and technology exports to what's been going on the broader scale in terms of overall consumption and overall economic recession fears in APAC, which hasn't picked up.

DAVE BRIGGS: Ray, what's the investor story ahead for Apple? And how significant are the new additions? We can go back to the phone that is in stores now. I know the watch for the athletes is there and the new AirPods as well.

RAY WANG: Yeah, no, the Apple story is actually going to be the bright light among the MATANA group for a lot of reasons, right? The fundamentals are there, right? You've got 1.2 billion devices. You've got something like 800 billion devices that have not been onto 5G yet. There's more demand for the iPhone 14 than there was for the 13. And we're seeing all the stops from the carrier discounts across the board.

They're also in a really good position, $202 billion of cash on hand. They're highly profitable with about 39% operating margins. And this supercycle is going to help, right? The watch, right? I've got one on right now, right? I don't have the ultra, but you're seeing a lot of people choose Apple because of features like the ability to use SOS with satellite connectivity, or really, the ability to do fall and crash detection, or the ability to integrate back to the healthcare pieces that people worry about, much more so in the post-pandemic phase.

So they're in really good position. They've done a good job building their services revenue, which we think is going to head more than 25% in the next two years. So overall, they're in one of the best spots.

SEANA SMITH: Certainly are a number of reasons to be bullish on these names here in the long-term, Ray, but taking a look at the shorter term, right, because there are still a number of headwinds here. We have high inflation. We have rising rates. We have the fact that we've seen a pullback in ad spending. I guess, what is it going to be? What is the catalyst that it's going to take to really turn things around for the sector?

RAY WANG: I think the biggest catalyst are really things that I don't really get excited about, the fact that we're going to have unemployment rates go up or the fact that we're going to have, like, more recessionary numbers, right? So all the negative numbers are required for us to get out of this hawkish Fed stance. They're not things we get excited about. But they have to happen before things stabilize, right?

Right now, I mean, if you've got cash, I mean, you're probably going to be holding on to it for just a little bit longer, or you might be getting two-year notes, right? Wait until the market gets better. But there's still a lot of opportunities in the market, but you're going to have to figure out which are the quality stocks.

You're going to be picking stocks as opposed to going into categories. For example, if you look at the FedEx situation, that is really a FedEx situation, as opposed to a global kind of indicator. There are 2/3 FedEx, 1/3 global. And I think people have to realize those types of nuances when they're looking at the stocks.

RACHELLE AKUFFO: And Ray, what about Tesla? What about the EV space? What are you watching there?

RAY WANG: Well, what I'm excited about Tesla, and as we've talked about many times, is that Tesla is not an automobile company. It's a tech company. And what they're doing is they're positioning themselves as not only the key stock in everyone's ESG portfolio, but also a vertically integrated market. Their ability to take anything from the battery to the final production of the car to the data collection brings them new opportunities.

For example, they can do their own underwriting for insurance, which I know that they're heavily jumping into. Their ability to use computer vision instead of LiDAR to actually do autonomous vehicles and be able to actually do that mapping and identify obstacles puts them in a better position than many of the autonomous vehicle manufacturers. Their ability to actually have their own power production in terms of the batteries, in terms of being due to their battery plants, gives them a huge advantage to everyone else.

And with the mandates that are coming to get to electronic vehicles depending on the state and the country where you are, right, they're in a very good position to be able to ramp up production. And so we'll be watching to see what their production numbers are and how they compare.