Not everyone is buying the hype around artificial intelligence just yet but the industry has one big believer in Stanley Druckenmiller, who recently said that AI "could be as transformative as the internet." And Druckenmiller is a good man to have in your corner. The billionaire investor has managed funds for more than 40 years and incredibly never had a down year.
In a recent interview with Bloomberg, Druckenmiller said that over the last five to six months, AI stocks have "dominated" his portfolio of long-term positions. Let's take a look at Druckenmiller's favorite AI company.
The 'pick and shovel' play for AI
Druckenmiller currently runs the Duquesne Family Office and one of his top holdings is the semiconductor company Nvidia (NVDA -1.84%), which creates critical hardware that powers AI applications and also makes AI software. Druckenmiller owned $340 million of shares at the end of the first quarter.
The rise of generative AI technology like ChatGPT has kick-started an AI craze. Many investors like Druckenmiller and experts believe generative AI is going to be a total game changer and disrupt the world as we know it. Having been a leader in the space for many years, Nvidia has seen its stock lift off and is now up more than 200% this year, trading at a massive valuation and joining the $1 trillion market cap club.
NVDA Market Cap data by YCharts
The ascend has led some to grow concerned that such a huge valuation could be vulnerable with many including Druckenmiller himself predicting a "hard landing" for the U.S. economy. But Druckenmiller thinks Nvidia can still do well under difficult economic conditions.
"Could Nvidia go down materially in the short-term from any point? Yes. But I would be surprised," he said. "If I'm right on AI and the impact of it -- it's already making the top coders seven or eight times more productive than they were five months ago. If it's as big as I think it is, Nvidia is something we're going to want to own for two or three years, not 10 months, and maybe longer."
Druckenmiller is optimistic that Nvidia can post good earnings in a recession, which he thinks would support its valuation. "History has proven [that] if you have very good earnings in a recession and they're sustainable... those stocks will do just fine," he added.
In the first quarter of the year, Nvidia delivered adjusted earnings of $1.09 on revenue of $7.2 billion, handily beating estimates. Management also said it expects revenue in the second quarter to balloon to more than $11 billion in the second quarter and the consensus estimate had only been $7.2 billion. Analysts were left dumbfounded by the guide, with some saying they had never seen anything quite like it.
A huge compliment
With Nvidia trading at a towering valuation and in the $1 trillion market cap club, investors should be careful about going in too heavy on the stock right now.
As we all learned in 2021 when tech valuations rocketed into the stratosphere, the bigger the expectations the smaller the margin for error. A hard landing for the economy is quite possible and Nvidia has shown to be a cyclical company in the past.
But to get such high praise from an investor like Druckenmiller speaks volumes. The hype around AI also doesn't seem like it's going away, either, and is still likely in the early innings in terms of what the technology can do, so some like Druckenmiller may see the valuation as irrelevant compared to the company's long-term potential.
