Nvidia (NVDA) has reached an all-time high in trading and shows few signs of slowing down. But are there opportunities in the sector for other companies to make an intervention?

Constellation Research founder and analyst R "Ray" Wang and TD Cowen managing director and senior equity research analyst John Blackledge join the Live show to discuss the future of the Magnificent Seven tech stocks and what investors need to keep in mind with so many possibilities in the sector.

While Apple (AAPL) has made forays into generative AI, investors say they want more. Wang, however, sees existing potential, such as the expansion of Apple Ferret, an open-source machine learning model, and Apple chips with built-in AI. He signals that the recent regulations levied against Apple rom the Europe Union might affect AI stocks moving forward: "The challenge with AI and regulatory bodies is this is the opportunity for an aspiring politician to save the world and help us with privacy and stop big tech. And without understanding the cost/benefit analysis of what they're going up against. So you are going to see a lot more regulatory pressure and headwinds that are going to affect a lot of these tech companies, especially as government wants to get involved in the regulatory aspect of AI because tech is one of the few industries that is so lightly regulated compared to everything else."

Blackledge elaborates on the nature of competition between tech companies in their pursuit of generative AI: "Microsoft (MSFT) and OpenAI clearly won the headline battle last year for sure. Alphabet (GOOG,GOOGL), as far as I was tracking, right, probably in February, March, start to go faster with it. They had some good announcements in IO last year, last May. Obviously we're talking about the Gemini launch and it is going to be a little bit uneven but I do believe it's there for them to do well and to benefit like I was saying earlier with their cloud business, for enterprises and small business, and then with their Gemini suite of products for consumers. I agree, we've heard from all of our companies have reported. They're all using generative AI across their companies for internal functions and what not. We think Alphabet will be there for it. The pressure is definitely on."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JOSH LIPTON: We're here to break down the best plays for your portfolio with the Yahoo Finance Playbook and today, tomorrow, and long term with the help of some industry experts. Today we're going to be focusing on the tech sector. Check out Nvidia. It's reaching an all-time high here that's after hitting the $2 trillion market cap and raising optimism for other tech stocks. But it also has raised some concerns of a potential bubble, which could spook investors.

We're here with Ray Wang, Constellation Research's principal analyst, founder, and John Blackledge, TD Cowen's managing director. Fellas, welcome both of you to the show. Ray, maybe I'll start with you and with that question, Ray, about Nvidia where this remarkable rally continues, Ray.

Bloomberg is noting here, Nvidia has now leapt past Aramco in market value, which means it is the world's third most valuable public company. You see a move like that, Ray, and some people do begin to raise questions about maybe perhaps what we're seeing here is the kind of classic AI bubble. Is that what you're seeing, Ray, or no, you think this move makes sense?

RAY WANG: We are definitely not saying that. We are seeing this as the beginning of the second inning of the biggest AI boom ever. And this is the age of AI, and Nvidia is leading the way. They've got a 24-month lead on chips. No one can catch up yet. They've got to lock in at the Cuda level, which is their software that acts as the chips. And they've got partnerships that are basically showing where their future investments are going to be.

So it's got a long way to go, at least 24 months before a competitor can catch up to them. And so the question isn't, do you invest in Nvidia or not? The question is, what else do you invest with Nvidia?

JULIE HYMAN: Well, and that is a great question. John, I want to take that question to you, because if you were looking to capitalize on the AI enthusiasm here and not just directly but sort of how it's going to benefit various ecosystems, in your coverage, who do you think is sort of best poised?

JOHN BLACKLEDGE: Yeah. You have obviously Amazon with their AWS, their cloud business. Obviously, Alphabet. Google should be a leader in this. For gen AI, we do not think it will be a zero sum game. There's going to be multiple players that benefit. And so we have Amazon and Alphabet, and then Meta as well.

The one difference with Meta relative to Alphabetics and Amazon is they don't have a cloud business. But if you look at it, just tallying it up the AWS CapEx plus Google's CapEx plus Meta's CapEx this year, we have it at about $115 billion, up about 35% year-over-year. And so they're investing significantly ahead of-- you know, Ray was just saying, just this big boom of generative AI.

And I also believe we're really early. These companies are going to be very well-positioned. And so they're spending ahead on capacity for the generative AI solutions that they're going to offer companies and consumers.

JOSH LIPTON: And Ray, another name I want to get your take on here is Apple. And you know, it's down about 10% so far this year. I think in part there are investors who are worried about Tim Cook's AI strategy. And you know, I know Apple would say, listen, we do integrate that technology across our portfolio. They would point to features like predictive text. But I think, Ray, investors want more. They want some new gen AI product that is just going to blow away consumers. Do you think that's coming, Ray? And if so, when?

RAY WANG: Well, if there's going to be any announcement, it's going to happen in the Worldwide Developer Conference. That typically happens in the June timeframe. I don't have any additional knowledge as to what they would announce. But they've got a couple of things that they gave sneak peeks on.

Apple Ferret is a very interesting piece. It's an open source library approach in terms of doing visuals and text. And that's one of the things that they've put out as a language model that people can start to play with. There's some traction that I see, especially among college kids and people in the university that are testing that to see what they can do.

And then of course, if you think about Apple on the other areas, I mean, they've got the chips. They're already in the chip game. And they've got AI built into their chips. So I don't know what other story they have to tell investors, but it's been in the back. And they're really ambient experiences, but investors aren't buying it. And that's part of the challenge.

JULIE HYMAN: Ray, of course, we also had that big EU fine that was levied against Apple today. And I wonder, how much of a concern you think that is for Apple and for other companies that are going to be subject to, in particular, EU regulation?

RAY WANG: Yeah. The challenge with AI and regulatory bodies is that this is the opportunity for an aspiring politician to save the world and help us with privacy and stop big tech and without understanding the cost-benefit analysis of what they're going up against. And so you're going to see a lot more regulatory pressure and tailwinds that are-- headwinds that are going to affect a lot of these tech companies, especially as government wants to get involved in the regulatory aspect of AI, because tech is one of the few industries that is so lightly regulated compared to everything else.

JULIE HYMAN: John, I want to follow up with you about that, because, of course, these regulatory pressures are not just affecting Apple. They're affecting a lot of the other companies. That Digital Markets Act, the deadline for which is Wednesday, there are some changes that some of these companies are going to have to make. Is-- are any-- is any of that going to be material? Thus far, it has not really proven to be.

JOHN BLACKLEDGE: One of the things with generative AI on the regulatory side, which I think is kind of interesting, is the folks that created these, like GPT 3 and GPT 4, they didn't exactly know what-- they didn't know it could speak Italian, they didn't know it could code so well. And that's one of the issues that I've seen just in attending conferences over the last year, seeing government officials saying, hey, we don't know if we can use this, because we don't know what it's going to create on the other side of it.

So I think it is going to be interesting. And I do think the governments around the world have to pretty much act quickly, because it is going so fast and just to ensure safe and responsible AI.

JOSH LIPTON: Ray, I also want to get your take on another issue here, talk about Alphabet for a second, which I think you own. Correct me if I'm wrong there. But I want to get your take about the Gemini AI app, Ray, and the kind of political uproar we saw about that. It became kind of this running joke on social media. I'm interested, Ray, how much-- as an investor, how much of a black eye you think that was for Alphabet? And did it raise questions for you, Ray, about its vulnerability here with rivals?

RAY WANG: There are two things with the Google Gemini issue and the Alphabet issue. I think the main part was really that you only get to learn what you train against, right? And you can see biases right away. And I think without the human piece that's built into it, you wouldn't have caught a lot of these kind of errors.

The challenge was this, Microsoft started the war before Google was ready. Google had waited a long time, they didn't want to go out with a lot of the generative AI until it was perfect. Microsoft jumped the gun on Google. And this is why we have a lot of these interesting issues pop up.

There's a lot of training that actually has to happen. And there's a lot of human intervention to be able to do that. And I think we're going to see a lot of these across the board. This will be the one that caught everyone's attention. But I think you're going to see a few more of these pop up, because these things aren't perfect. This is gen AI. It's probabilistic. It's not deterministic. You know, 1 plus 1 could equal 3 one day. And we have to go correct that. And that's why human intervention is important.

And so this is where transparency is important, visibility is important. The ability to actually understand how to keep training these systems is important. And it's also important to have a human in the loop as you're thinking about these ethical models.

JULIE HYMAN: And John, I know you cover Alphabet. And you've got an outperform on that stock. So what is your view of how they have sort of managed through these early days of AI and how they're going to do going forward against the likes of Microsoft?

JOHN BLACKLEDGE: Yeah. I mean, Microsoft and OpenAI clearly won the headline battle last year for sure. Alphabet, as far as I was tracking, right, probably in February, March, started to go faster with it. They had some good announcements at I/O last year and last May. Obviously, we're just talking about the Gemini launch.

And it is going to be a little bit uneven. But I do believe it is there for them to do well and to benefit, like I was saying earlier, with their cloud business for enterprises and small businesses and then with their Gemini suite of products for consumers. And I agree, like there's a lot-- like we've heard from all of our companies have reported. They're all kind of using generative AI across their companies and for internal functions and whatnot. And we think Alphabet will be there for it.

But for sure, I mean, there-- the pressure is definitely on. And I agree with Ray, these LLMs, what they create is not perfect. But I believe that over time, Alphabet will get it right. It was definitively their number one priority this year is to be the leader in AI. And so it's still early in the year, but it's-- but yeah, they need to pick it up a little bit.

JOSH LIPTON: Ray, John, thank you guys both for joining the show today. Appreciate it.

JOHN BLACKLEDGE: Thank you.

RAY WANG: Take care. Thank you.