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Tech is the worst performing sector so far this year. Is this just a pause or a crack in the AI trade? Let's bring in Dan Ives, managing director and senior equity research analyst at Wedbush Securities to discuss. Dan, always good to have you. I know you're well known for saying the AI party is just getting started, but it feels like the party is getting broken up here.
Did someone call the cops? Is the AI trade actually cracking? Look, I mean there's some glass in the dance floor right now. Maybe the DJ stopped playing all the music. Look, Caroline, um I think there's a combination of things that are worrying investors. I think one, we've had a tech earning season that's robust relative to to the numbers, but obviously a lot of the sort of ebbs and the flows relative to cap backs and monetization, that's worried investors.
I think the Nvidia OpenAI soap opera has definitely added to some of the algebra. And then look, part of it is I think what's happening here, we're almost having a mini deep seat moment. Going back to a year ago. A moment where investors feel like, "Okay, it's cracking. You know, the the the trade is really starting to you know almost blossom into something that that's that's become a storm." I disagree.
I think this is actually much more of a smoke no fire, bark worse than a bite relative to just massive monetization and spending that we actually see playing out in front of us. This doesn't test your bullishness at all, though. It doesn't make you worried at all to see such a negative performance so far this year?
Oh, it does I mean look, I had what? 2 hours sleep the last two nights. I mean the point is like I'm talking to clients that I haven't talked to probably in 10 years. Just given the nervousness. I mean to just some palpable sort of nervousness out there. Look, I've covered tech going back to the '90s.
Clients need me in times like this, not when stocks are going up into the right. But I just view it like this. If I talk But but I was just going to say, like if I if I'm tracking 50, 60, 70 deals and those deals on the enterprise are accelerating, no one's stopping. We've actually seen acceleration in terms of strategically allowed the AI projects.
All of our Asia checks are showing demand to supply pulling anywhere between 10 to 12 to one for Nvidia chips. Like the point is I get the I get the nervousness, but it that's what I focus on, the fundamental checks, rather than just making looking at the tape and having that get me nervous. What is it that keeps you up at night, though?
What's something that could derail this this rally? What keeps me up at night is the growing pressure on these companies from Nvidia to OpenAI to Oracle to Google to Microsoft in terms of CapEx. And the worry that investors are just growing increasingly concerned about what this all means from a CapEx perspective.
The thing that concerns me is does that in any way slow down the pace of AI spend? I don't believe it does. I think these companies to some extent I come out of earning season more emboldened that to say our revolution's hitting its next stage of growth. But the pressure that's on the companies I actually think it's causing more transparency.
Look at Oracle. They laid out 45 to 50 billion. They they showed their plan how they're going to spend how they're going to raise money. That's what you want to see. Well, you mentioned Oracle. Software stocks are really getting hammered on fears that AI will essentially make them obsolete. We're seeing names not just like Oracle, but ServiceNow, Salesforce, Snowflake, down almost 30% in 2026.
Are any of those fears warranted, or do you look at that as a generational buy? I guess which software names are clear winners, and which are most at risk? Yeah, so to answer, and it's a great question. I'd say is AI a near-term headwind for software? Yes. Is AI structurally ruin the sector? No. I essentially think I baked into some of these valuations, you have to assume Salesforce loses 10-15% of their customer base.
You have to assume ServiceNow numbers go down 20% from where the street is today. What I'm saying is like this is an Armageddon-like trade right now for software. And I can tell you, going back to the '80s, '90s, I have never seen a sector structurally thrown into the garbage like this in all my time.
Now, there have been times, dot-com bubble and burst, financial crisis, but the software sector is basically trading like it's structurally broken. And I strongly disagree with that view, and that's why I think like Salesforce, Microsoft, you talk about Oracle, CrowdStrike, some of the cybersecurity names, you know, I think of the ones that you own along with Microsoft.
So, for investors sitting on the sidelines right now, is this the moment to buy, or is it best to be patient for a bit and see how this plays out? No, I I think this is in a year, you get four or five opportunities. Like I go back to last year, the deep seek moment, liberation day, some of the geopolitical issues, you know, over the summer, and then maybe into the fall with Fed, th- this is the moment.
Like, there to me it is a clear buying opportunity to own the winners if you actually have a time horizon more longer than a few weeks, a few months. I mean in other words like you're you're looking at we're in year three of an 8 to 10 year build out for AI revolution. Year three. Okay, so we had Alphabet report last night failing to impress.
I think that CapEx number maybe scared some investors off. It's down 4%. Amazon on is out after the bell today. Anything that they can do to change this narrative? Look, Google being down on this number is I think a top five most anomalous move that I've seen going back to the last year. I mean in other words like Google right now should be up given those numbers, given CapEx.
You want to see them aggressively spend. If they're not you want to see them on the offensive. And when it comes to Amazon like you'll see more of that what they're going to talk about in terms like AWS growth. They got to they got to keep pace with Google. You got to keep pace with Microsoft. And I continue to think like there's really no AI premium that's being factored into the Amazon story.
Microsoft is the worst performer of the Mag 7 so far this year. If you could only buy one dip for the Mag 7, which one would it be? It's Microsoft. I think that's the one like generational opportunity. Like if I look over the next like 12, 18, 24 months we could we'll go back to this interview and we'll be like that was a massive opportunity on Microsoft.
Can it go lower? Of course. But but it's my view like is this a stock that goes to 500, 600? Yes. Okay, so just finally, what advice do you give retail investors right now as they try to navigate the volatility and the noise in tech, but also knowing that you're saying that this is the deep seeker the liberation day moment that, you know, I think a lot of people wish they would have bought into?
Look, I think it's it's a nervous time. And I think you have to you have to be able to focus on the winners and claim this AI revolution over the coming years. You cannot get caught up, whether it's technical, the crypto sell-off, what we're seeing with just risk assets, because otherwise, I think when you lose that discipline, that's how I think a lot of investment mistakes are made.
That's why I think you have on your board your winners, the names you wanted to buy, the opportunities to buy them. Structurally, you actually feel better about the AI trade today than before earning season, and that's our advice to investors. I mean, this is not the time to panic. It's the time to actually start to build positions in some of these names.
Okay, and we still you still think what, 20, 25% uh returns for the Nasdaq this year? We That That is a firm view and and nothing that's happened from our checks, what we've seen in Asia, what I saw in Davos, talking to, you know, to Davos, to a lot of companies, what I saw at CES, what I see talking to to software companies, tech companies throughout earnings, in any way makes me move off that number.
Okay, before we let you go, Dan, it's time for our rapid-fire game of this or that. You've done this before, are you ready to do it again? Let's go. All right, here we go. AI, healthy pullback or bigger reversal? Healthy pull Healthy pullback. Buyer's market or hold what you own? Buyer's market. Better dip to buy, Nvidia or AMD?
Nvidia. Microsoft or Tesla? Which kid do you love the best? I'd say Tesla. Qualcomm or ARM? Qualcomm. ServiceNow or Snowflake? Snowflake. Snowflake or Microsoft? Microsoft. Oracle or Salesforce? I'd say Salesforce. Salesforce or Palantir? Or Palantir, I mean Palantir. That's I I view that as a top-tier Mount Rushmore.
Here's an interesting one, Bitcoin or gold? You know, I mean I've said bullish on both, but I mean to me I think this this gold we we've talked about the gold sell-off continues to be what you're on. Okay, 2026, earnings inflection point or just more spending? I think earnings inflection point, monetization inflection point starts to happen.
Mag 7 broad dominance or a stock picker's market? Stock picker's market, but obviously still extremely relevant. Which Mag 7 delivered the best earnings so far? Still need to hear from Amazon and and Nvidia. Meta. Next 12 months, AWS or Google Cloud? I'd say Google Cloud. Better AI plays, Tesla's full self-driving or Google's Gemini?
Tesla. Software, legacy giants or pure plays like Palantir? Pure plays like Palantir, but there are massive opportunities given the massive garage sale we're seeing in software. Long-term AI software winner. Palantir. If you could only own one AI stock for 2026, what is it? Tesla. One you'd trim right now.
Probably in the making Adobe, but that's obviously already sold off so much. One mag seven you'd buy and hold all year. Apple. Best stock on sale right now. Microsoft. Describe the current moment for tech in just one word or two. White knuckle. And finally, because you came on in January and gave your top five stock picks for AI, what are your top five now that we've seen some of this carnage?
The the same. Same five. Which are? We're not Well, well, well, look, we're not ones that stock moves don't don't massively change our investment thesis. Okay. So, that was five. I'm looking back at my notes here. Apple, Tesla, Microsoft, Apple, CrowdStrike, Microsoft, and CrowdStrike. Okay. All right, Dan, always a pleasure. Thanks so much. Turbulence, wear the seatbelt.
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