Steve Sosnick, Chief Strategist at Interactive Brokers (IBKR), spoke with Quartz for the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.
ANDY MILLS (AM): Nvidia CEO Jensen Huang said today that quantum computing might be a couple of decades away, or at least its usefulness. How do you see that affecting AI stocks and Nvidia (NVDA) stock?
STEVE SOSNICK (SS): The one thing about quantum computing is really people hadn’t been thinking about it until, call it a month ago, six weeks ago, when Alphabet announced that they were closer to some sort of quantum computing breakthrough, but even at the time, they didn’t say it was immediate breakthrough. They implied that it was years away, seven years, a decade, et cetera.
Yet, the quantum computing stocks went crazy. Number three stock on the Interactive Brokers platform for the last couple of weeks has been Rigetti Computing (RGTI), RGTI. I doubt many viewers heard of this stock two months ago. But here it is. But people love a good story. People love small stocks that move and this thing went up multiple times in a fairly short period of time.
They’re all down about 40 or 50% today, RGTI, IONQ (IONQ), QUBT (QUBT), et cetera, all these are small companies. And interestingly Alphabet (GOOGL) was not one of the most actively traded stocks in our platform for a while, which tells you something. It tells you that people wanted the sexy new thing rather than the company that actually might have been closest to commercializing it anyway.
When Jensen Huang speaks, the market listens. And we learned that Monday night, we learned that with the stock, with Nvidia running up 10% into Jensen’s CES address. And I did write at the time that it seemed like an inevitable buy-the-rumor, sell-the-news event. It was because Nvidia rallied 10%, as did Tesla (TSLA), by the way, 10% in two days.
On a company that size, that’s $370 billion in market cap, what could he say that was worth more than the $370 billion that was priced in? So going back to the comments today about quantum computing, I think AI remains a thing with or without quantum computing. That would obviously be helpful somewhere down the road because AI requires immense computing power.
If quantum computing can do it more efficiently and effectively, that would be good for the AI theme. But I don’t think that was really priced in recently. It certainly hadn’t been until six weeks ago. So I think AI remains what it is.
Quantum computing remains, let’s say, this big, bright, shiny object way off in the future, and we were reminded of it. That’s what Google told us when the craze got started and Jensen Huang just reminded us of that today, and it’s an unpleasant reminder for those who’d been speculating in those stocks.
AM: I was wondering if it would be a buying opportunity right now to get into these smaller AI stocks that are getting beaten today. But Jensen was pretty clear about the timeline of quantum computing. What would you do if you were an investor?
SS: That’s reasonably fair. I think these [quantum computing] stocks got well ahead of themselves. Again, we’re talking about the way to think of these stocks is a lot like biotechs. Nvidia and Alphabet, all these other companies, they’re the Merck (MRK), the Lilly (LLY), the Pfizer (PFE), except for the fact that they are growing a lot faster. Well, maybe with the exception of Lilly because of the diet drugs. But these are the companies that are the established companies with the established growth.
And you could think of some of these other companies like biotechs where there’s largely a crapshoot. They’re either going to discover this breakthrough and commercialize it, or they’re gonna get close to it, and they’re gonna get bought by one of these bigger companies. But what we’re talking about here is years away. I’m far from being an expert to tell you which of these companies might be closest to commercializing them. I will take the Alphabets and Nvidias of the world telling me that we’re not close on some of them.
I think from a trading point of view, sure, it’s logical to look at them down 40, 50% and say, maybe it’s time to buy the dip. From an investing point of view, I don’t know what they’re really worth. So, thinking from a fundamental point of view, good luck. I don’t know.
Photo: Jin lee/Bloomberg (Getty Images)
AM: Nvidia stock saw that huge run-up going into CES, and then there was the pullback on Tuesday. What do you see next for Nvidia stock?
SS: Nvidia’s tricky because it’s hard to say that it can be an overlooked value play. It’s literally the most talked about, most watched, most important company in the marketplace right now. It may not be number one in terms of market cap, but it’s in spitting distance.
So there’s not a lot of hidden information when it comes to Nvidia. It’s gonna be about their ability to deliver. Jensen Huang showed some interesting gadgetry at CES, but again, it had been more than priced in by the stock’s move and investors or traders, I should say, are very big on chasing rallies, on buying momentum.
You know, it’s always been about “buy low, sell high”, but I think right now you’ve also got a fair degree of “it’s moving so let’s buy high and hope to sell higher. Let’s buy into these rallies.” We’re seeing them get stretched. Those are the things I would avoid or at least if you are going to participate in them, realize that you are doing this as a trade, not as an investment.
I’m never going to dissuade someone from trading (That’s what I’ve spent most of my career doing), but it’s very important to distinguish between the two. So I think with Nvidia, listen to the analysts, listen to the market, and take opportunities, but don’t necessarily chase stock. This is one where I think it’s become much more of a fundamental play despite the fact that it has these occasional trading movements.
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Minnie Phillips is a news writer for PM-News, where she writes about politics, health, business, parenting, and finance. She has been writing since she was in high school. Minnie is also a mother of two and loves to travel. In her spare time she likes to go hiking and read books by her favorite author James Patterson.
