The Best Stock To Buy During The "AI Slowdown"
Summary
Joseph argues that the current war against AI and calls for regulation from companies like Anthropic and OpenAI are driven by a desire for regulatory capture and cost reduction rather than pure safety concerns. Joseph states that a coordinated pacing of AI development would allow leading labs to bolster balance sheets for upcoming IPOs while preventing competitors from closing the technological gap. Joseph argues that Meta stands out as the primary beneficiary of such a slowdown because Meta does not need to be at the absolute frontier of AI to generate significant revenue from the core advertising business.
Joseph states that Meta currently trades at an attractive valuation with a price-to-earnings ratio of 21, despite delivering 27% year-over-year revenue growth. Joseph argues that if regulatory pressure forces a reduction in capital expenditures, the free cash flow and margins of Meta would improve significantly, likely leading to a stock re-rating. Joseph emphasizes that Mark Zuckerberg has successfully pivoted Meta through multiple industry transitions and Meta is now positioned to win whether AI becomes a commodity or remains a proprietary advantage.
Joseph notes that semiconductor leaders like Nvidia have seen recent share price volatility due to fears surrounding a coordinated AI slowdown. Joseph states that while these companies are sensitive to changes in capital expenditures from major tech firms, the long-term utility of AI remains a powerful driver. Joseph argues that the doomsday narratives used by some AI leaders are being leveraged to influence government policy in a way that disadvantages hardware-dependent competitors.
Joseph states that ASML is also impacted by the shifting narrative around the pace of AI advancement and potential government intervention. Joseph argues that any legislated slowdown in model training would temporarily impact the demand for high-end lithography equipment. Joseph states that investors should monitor whether these regulatory calls lead to actual pacing or if these calls are merely strategic posturing by current market leaders.
Mentioned Stocks
Reasoning: Joseph argues Meta is currently undervalued at a 21 PE ratio despite 27% revenue growth. Joseph states that Meta wins whether AI becomes a commodity or remains proprietary, as Meta controls the distribution and attention. Joseph argues a capex slowdown would improve margins and eliminate the perceived risk of high capital expenditures.
Reasoning: Joseph states that Nvidia shares have faced downward pressure due to fears that a coordinated AI slowdown will reduce demand for GPUs. Joseph argues that while these concerns impact the stock in the short term, the utility of the technology remains high.
Reasoning: Joseph notes that ASML is impacted by market hysteria regarding potential AI regulation and pacing strategies. Joseph states that a slowdown in the training of frontier models would temporarily reduce the pace of infrastructure build-outs requiring ASML equipment.