Table of Contents
Shanti Kelemen, Chief Investment Officer at 7IM, suggests that while NVIDIA remains the market’s primary bellwether, the future of artificial intelligence (AI) growth will depend on adoption within non-tech sectors. Speaking on the current state of play ahead of NVIDIA’s latest earnings report, Kelemen argued that with technology valuations at historic highs, investors are now looking for tangible earnings growth and cross-industry implementation to sustain market momentum.
Key Points
- NVIDIA earnings serve as a critical indicator for Big Tech spending patterns, particularly for companies like Amazon and Meta.
- The software sector has faced an indiscriminate sell-off as investors struggle to distinguish between long-term AI winners and losers.
- Traditional industries, including wealth management, banking, and retail, stand to see the most significant valuation rewards from successful AI integration.
- Global trade uncertainty and potential tariffs are accelerating the trend of manufacturing diversification across India, Mexico, and the United States.
NVIDIA and the High Bar for Tech Valuations
While some analysts previously labeled NVIDIA earnings as "macro-level events," Kelemen views the upcoming report as a vital diagnostic tool for the health of S&P 500 spending. As the largest stock in the index, its performance provides essential data on the ordering patterns of Big Tech firms that have committed billions to AI infrastructure. However, Kelemen cautions that the hardware giant faces an uphill battle to move its share price higher due to existing market enthusiasm.
"It’s still incredibly important given it’s the largest stock in the S&P, and it does give us insight into what are the ordering patterns... but I think it’ll take a really big beat to see the stock actually move because expectations are so high," Kelemen stated.
This sentiment extends to the broader technology sector, where high valuations have left little room for error. Kelemen notes that further share price growth must now be driven by earnings performance rather than multiple expansion, as market participants become more discerning about which companies can translate AI investment into bottom-line results.
The Software Sector Realignment
The software industry has recently undergone a period of volatility characterized by what Kelemen describes as "indiscriminate" selling. This trend reflects a growing realization among investors that identifying the ultimate beneficiaries of AI is more complex than initially anticipated. While AI has the potential to dramatically reduce programming costs and improve delivery efficiency, the transition poses a significant execution risk for established firms.
Kelemen maintains that the companies that survive this shift will be those that use AI to fundamentally alter their cost structures. By reducing expenses and enhancing the user experience, software firms can rebuild momentum, though Kelemen warns that "executing all that is really difficult, and not every software company is gonna be able to do it."
AI Adoption Beyond Silicon Valley
The most significant opportunities for investors may no longer reside within the Mag Seven or hardware providers, but in traditional sectors where valuations remain relatively low. Kelemen points to the wealth industry, retail, and finance as prime candidates for an AI-driven "reward" phase. In these sectors, AI is being deployed to streamline regulatory compliance and enhance customer shopping experiences.
"I think the big thing we’re looking at is how much AI is starting to impact industries outside of technology, and that’s where valuations are lower... if some of those sectors can start to demonstrate that they’re using the technology well and adopting it, then they’ll really be rewarded."
Trade Policy and Manufacturing Resilience
Amidst these technological shifts, the threat of shifting tariff policies and trade uncertainty remains a persistent concern for the sector. Kelemen suggests that the long-term trend of diversifying production away from a single manufacturing base—moving instead toward India, Mexico, and domestic U.S. facilities—is unlikely to reverse. This "multi-shoring" strategy allows companies to keep their options open in an unpredictable policy environment, regardless of short-term rate changes or political shifts.
As the market moves into the next fiscal quarter, the focus will likely shift from the hardware required to build AI to the practical applications that generate value. Investors will be closely watching for those non-tech firms that can demonstrate successful integration, signaling the next phase of the AI trade.
