Nvidia’s (NVDA) latest earnings highlighted a major issue for the AI trade; despite beating earnings expectations, investors were disappointed as they looked for significant returns on massive capital expenditures (CapEx). RBC Capital Markets Internet Analyst Brad Erickson joins Asking for a Trend to break down the state of the AI trade and the technology’s outlook amid a heated competition. Erickson explains that generative AI platforms are emerging "right in front of us," pointing to software engineering efficiencies, customer support platforms, and marketing tools as examples. He also highlights sovereign AI, where countries are spending on the technology to use and access data that no one else has. He adds, "If you look at like the top four or five CapEx spenders on AI infrastructure, it’s $200 billion and it’s going up next year probably by more than 10%." He explains that investors are in a position where they have to put "blind faith" into AI players, knowing that it will pay off in the future. He tells Yahoo Finance, "From my perspective, like we’re taking a little bit more of a measured approach, saying, ‘Look, $200 billion. Think about what you need to do to maintain operating margins.’ Pretty simple math of, like, are we really talking about $300, $400 billion of marginal revenue every single year? Those are big numbers." Erickson believes that competing AI tools from names like Google (GOOG, GOOGL) and OpenAI will ultimately "end up looking a lot of the same kind of thing." He argues that distribution is a more important factor and will likely determine the level of success.
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