The two tech stocks to buy despite major sector sell-off

Nvidia (NVDA) and Apple (AAPL) are driving the tech-heavy Nasdaq Composite (^IXIC) into turmoil amid a major sell-off on Wall Street. D.A. Davidson senior software analyst Gil Luria joins Morning Brief to discuss the market movement and his top tech stock picks despite the dip.

"There's traders selling because they're covering their yen carry trade. There's computer algorithmic trading that's selling because those traders sold. And then there's index fund computers that are selling because those two sold. What's not happening is somebody didn't wake up this morning and say Apple, Amazon (AMZN), and Microsoft (MSFT) are worth 5% less than they were on Friday. That's not happening," Luria explains. He says that fundamental-based investors haven't changed their minds since Friday, and the prospects for large cap tech companies will continue to do well.

He adds that there are companies out there that will benefit from AI over the next few years, and that value is not yet reflected in the stock price. He points to Apple as one of those companies as a buying opportunity, explaining its AI integration will drive an iPhone upgrade cycle. He also points to Amazon as another opportunity, noting that its AWS (Amazon Web Services) segment has more room to grow as it strengthens its AI capabilities.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video transcript

Nvidia and Apple.

Two of the names sending the NASDAQ further into turmoil as the tech sell off spreads across Wall Street here to weigh in on the tech route is Gil Luria who is the senior software analyst over at D A Davidson.

Gil thanks so much for taking some time here o on the day where there's a lot of urgency just after the opening bell here, I mean some of the names in your coverage are are crossing below their 200 day moving averages here, you know, just walk us through the mindset that investors should have on a day like this.

So here's what's happening.

Uh There's traders selling because they're covering their yet carry trade.

There's computer algorithmic trading that's selling because those traders sold and then there's index funds, computers that are selling because those two sold.

What's not happening is somebody didn't wake up this morning and say Apple, Amazon and Microsoft are worth five percent less than they were on Friday.

That's not happening.

And so that's what's important to remember right now is that fundamental based investors really haven't changed their mind about the world since Friday, things are the same.

The prospects are the same and they're very good for these large technology companies.

They're going to continue to do well for a variety of reasons that has not changed this morning.

So gil should investors be viewing this the dramatic move that we're seeing lower in a name like Apple and a name like NVIDIA.

Should they be using this then as a buying opportunity?

Two different questions.

I put Apple Amazon, Microsoft Google Meta in one group.

Again, companies that will do well, I don't think anybody is changing their estimates materially for the outlook for these companies for the next 3 to 5 years.

With NVIDIA.

The story is a little bit different for a variety of reasons.

One of which is that some uh problematic stories came up over the weekend.

One is that it's becoming increasingly clear from various reports that NVIDIA chips are most advanced video chips are being sold into China.

It's not NVIDIA selling there.

So it's probably not an illegal issue but their resellers are eventually making these chips appear in China, which they should not be.

The other story that came up is that the Blackwell chips, there's an issue with the design, uh lives are gonna be delayed.

And the reason that's important is that it's not just a delay and via has a window to sell to Microsoft Amazon and Meta while those companies are hot and bothered about building out data centers as quickly as they can that window will shut at some point either next year or the year after that, if NVIDIA is missing out on some of those sales during that window, that does have an impact on Nvidia's value.

And so in the near term for investors that have perhaps overweighted their portfolio on A I themes.

And NVIDIA being one of the poster Children of that, along with some of the other names you just mentioned.

Should they be taking profits here?

And, and what should they be watching for the larger cycle?

The bicycle, given how NVIDIA has leaned into and just said, hey, the demand is strong.

So we're able to continue selling at this point.

If there were some type of pivot in that, what does that equate to people's portfolios who leaned into that theme?

So what I would say is there's companies that are going to benefit significantly from A I over the next few years where that value is not reflected in their stock price, first and foremost, Apple and Amazon a year from today, most generative A I is going to be done on an Apple device mostly on an iphone.

That's something that hasn't even started to happen yet.

It will drive an iphone upgrade cycle and Apple's growth will accelerate from here that puts them in a very unique position to focus on.

For Amazon.

Amazon web services has accelerated for the last couple of quotas because they're now catching up the Microsoft Azure, in terms of A I capabilities, companies will continue to buy that and increasingly buy it from Amazon because Amazon web services is the largest provider.

Those things are still true.

Will the over building of A I data centers continue at this rate?

That's a different question.

But if it doesn't, that's good news for Microsoft who's been overspending on Capex.

It's not bad news.

They'll continue to get the business from A I in the long term.

But if they stop over building overspending, their margins will actually be able to expand from here as opposed to contract, which is what they're guiding to what that means for video.

Again, their window is finite and if there's less chips sold in that window, that's not good for them.

So Gil real quick as we wrap this up, we only have about 30 seconds here.

But I, I guess your take away from the selling that we have seen and kind of this reversal in terms of some of the narrative and sentiment, especially surrounding Big Tech.

Do you see this pressure then overall is it likely to be short lived then on these stocks or, or, or, or what's your read through on that?

Well, that's very hard to predict on a day to day basis because again, it's not factors that have anything to do with these companies that are guiding stocks lower, reversing the yen trade has nothing to do with these companies.

Uh concerns about, uh, geopolitical risk has nothing to do with these companies.

So that's very hard to predict what's going to happen on a day to day basis.

But again, these are very important businesses that have been solid, uh, prospects and good visibility into realizing the 3 to 5 year prospect that hasn't changed this morning.

All right, we're gonna be waiting for that next earnings report for NVIDIA to see if it could be some sort of backstop if the markets are continuing to decline into late August de Gill.

We appreciate the time.

Gil Luria, who is the D A Davidson senior software analyst?

Thanks so much.

Yeah.