Alex Divinsky: AI Stocks Investment Strategy for 2025

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0:39Step into a local Crocs store and step into your new look. Try it, style it, make it yours. Because the right pair doesn't just show up, it shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest Crocs store today. Big investments that I've made recently have been like 40 % in a single stock. This is Alex. He's a money nerd and he's been paying for his lifestyle with his investments for the past 10 years. When I met him at dinner and he told me about his investing strategy, I realized right away that I need to bring this to you guys because this is something I'm striving for and this is something I'd encourage everyone to look at.

1:21Alex Divinsky:People are panicking. That's exactly when you want to be greedy. In this episode, we're going to dig deep into his investment strategy. We're going to break down the AI bubble. We're going to talk about what he invests in and how he sees the future. And of course, the psychology of smart investing, how not to buy high and not to sell low. Let's dive deeper into this conversation with Alex. For an average investor like me, what would be the ideal portfolio if I want to win in this AI era? The best thing to do almost always in the stock market is... Hey guys, welcome to Silicon Valley, girl. My first question is, are we in a bubble?

1:54Are we in a bubble? I think certain kinds of stocks are definitely in a bubble and certain kinds are not. So for example, right now, hardware, you know, the infrastructure for AI is definitely not in a bubble. You know, we're already seeing some revenue returns on the infrastructure for AI and we're seeing like a big explosion in demand for the compute power associated with AI. So I think the underlying infrastructure, the servers, the data centers, the chips, things like that are definitely not in a bubble. I think we'll see certain software companies that are claiming to be AI software companies today.

2:31We'll see their valuation skyrocket and then drop. So those might be in a bubble today. I think it'll be a few years before we see the next Facebook, the next Google, the next big software companies associated with AI. Interesting. A lot of people talk about like this dot-com crash, right? When all the valuations were through the roof and suddenly everything's gone. Are we going to see something like that, do you think? I don't think so. I think, you know, we will in certain sectors for sure, maybe not as extreme. But I think what you're like, if you look at the balance sheets of a lot of these companies, you'll see that their revenues and their profits are following their valuation.

3:07So, for example, NVIDIA, sky high price, right? But if you look at their earnings per share and their PE ratio. Can you explain to everyone's watching what it means and what's a good number? Sure. Yeah. So when you think about a stock's price, which is really based on its market cap, so that kind of tells you how highly valued the company is. And then when you look at its earnings, that's literally, you know, you take the number of shares of that company, the number of shares outstanding, and how much money it generates in profit per share, right? So the higher that number, the better. So there's kind of two ways to control that number, right?

3:44You can earn a lot more money or you can decrease the amount of shares. What's a good number? For a PE ratio? Yeah. It kind of depends on the company and honestly what kind of PE ratio you're looking at. But I try to look at forward PE ratios, which means a prediction of the next 12

3:59Alex Divinsky:months of earnings, probably under like 30 is what I would say. And so really you'll hear different numbers from different people. So for example, value investors tend to want lower PE ratios, like 15, 12, even 10. Because they're hoping for her to go. Because they don't want to pay a high price per earnings per dollar earned, right? The flip side of that is if you just look at the PE ratio, what you're really ignoring is the growth of the company. And when you're talking about AI and other like pretty relatively new industries, they're growing very fast. So earnings is like a snapshot, right?

4:34Alex Divinsky:It's like taking a picture of a balance sheet and saying this is a number. But in reality, next quarter, those earnings will look very different. And then the quarter after that, and then the quarter after that. So looking at a forward PE ratio and thinking about what they'll be making next year or in two or three years or even five years can sometimes be a better estimate of the value. How accurate are those? So it depends. So the way the industry likes to do it is they look at analyst estimates and they take the average. Something I've noticed is analysts are usually incorrect. Usually sometimes buy a lot.

5:08So that's part of my job is to sort of understand the science behind the stock, if you will. That's what my YouTube channel is about. And really what that means is understanding

5:17Alex Divinsky:it from a product first perspective, because if you back up for a second, we've been talking about earnings, we've been talking about profits, we've been talking about prices, but all of those are really led by a company selling a product or service, right? So by the time they report their earnings and that news comes out, they've already done a lot of business. So you can actually probably figure things out faster if you understand the product, the service, the experience that company provides, because then you can make a decision before those numbers even hit the balance sheet, if that makes sense.

5:47Alex Divinsky:So that's kind of why I'm at conferences like this, is to look at NVIDIA, look at Amazon Web Services, look at these publicly traded companies, and try to understand more about the products and services they offer, what that means for their revenue, what's that going to mean for their margins going forward, and make investment decisions so that by the time it hits the news, I'm already invested. Yeah. So what are you investing in right now? Yeah. So big investments that I've made recently have been in NVIDIA. Yeah, I've been in NVIDIA. How much of your portfolio is NVIDIA? Right now it's down to like about 40%.

6:19So it used to be like... So like 40 % in a single stock? Yes. So it used to be even more. And that's because... So I've been holding NVIDIA stocks since 2016. So they've been... Good for you. Yeah. Are you buying the dip as well when everything crashed through the terrace, remember? Yeah. So I didn't buy that one, but NVIDIA has actually crashed by over 20 or 30 % several times in the last maybe 18 months now. So you track it and you buy it. So I track it and, you know, buy or at least like slowly average more in. And then a little while ago, I sold about a third of my shares. I got married. So I paid for my wedding.

6:55I paid for my honeymoon. Real life expenses. So, you know, I had to adjust my portfolio accordingly. How's it hold? Can you give me the overview? I've been talking about a stock called Palantir for about three years now. So I first started investing in Palantir in 2022 or 2023. I started buying it at about, I want to say like$11 a share. I sold it at around$25 a share. I sold about a third of my position. I ended up buying it back. You know, I reevaluated my thesis. I actually made videos on both sides, made a video saying, hey, I don't like these few things about the stock. Then a couple of people in the Palantir community pointed me towards like different things to look at, decided I was wrong, came out with another video, bought back in at around maybe like$28,$32.

7:47And now I believe it's at like$135 a share. Wow. So it was another like - How much of your portfolio is Palantir? Yeah, another like probably 20, 25%. And so let me make a good distinction here. So I didn't buy it to become that, right? When I bought these stocks, they were 8%, 10%, maybe 12 % of my portfolio. And because they grew, yeah. And so usually what I do is I buy and then I just hold for a long time because it can take a while for these companies to mature and then for the stock market to understand what these companies offer. So for example, whether we want to talk about NVIDIA or Palantir, their earnings trail

8:25Alex Divinsky:old, you know, what I'm trying to say is it wasn't easy to hold the stock because for a long time, they were losing money on their research, right? They were unprofitable or nearly unprofitable. NVIDIA was a gaming company first, transitioned to data centers. And that transition took a long time for them to become profitable in that segment and start growing in that segment. Meanwhile, they were declining in their gaming revenue, right? So it just looked like the business was going down. It's the same story with Palantir. They had a big government segment, and then they were spinning up their commercial segment.

8:56Alex Divinsky:And for a while, their government business was slowing down and their commercial business didn't make up the difference. So understanding the product is what got me in the stock before their earnings caught up to what they were actually doing. What was your background? Electrical engineering. So I'm not a finance guy. You know, my background is I have a bachelor's in electrical engineering, a master's in basically data science, and then an unfinished PhD in AI. I think you have perfect education for work. Yeah, yeah. So I'm very lucky, you know? So 40 % NVIDIA, 20... About like 25 % Palantiria.

9:3225 % Palantiria. What else? The rest is honestly companies straight from the NASDAQ. I'm a big believer in Google, big believer in Amazon and Microsoft. So individual stocks or... So a big portion of my portfolio is the NASDAQ 100, the index itself. You know, I hold another index called SPMO. That's the S &P Momentum Index. And so what's special about that one

9:51Alex Divinsky:is it only picks from companies in the S &P 500, but it tracks them based on momentum. So the relative amount that they've gone up in the last, I believe, four quarters or 12 months. So those two indexes make up a good chunk of my portfolio so that I'm a little bit diversified, but then individual stocks, and I usually pick from those same indexes. So Google, Microsoft, Amazon, Broadcom is a big stock that I cover. Is selling ever part of your strategy apart from personal expenses? Absolutely. So, you know, no matter who you are, a stock can get like way overheated very fast. Sometimes, you know, Palantir moved, for example, I think it was like it's up like 80 % this year.

10:33Alex Divinsky:That's a little too hot to handle. So I don't really sell out of a stock completely, but I'll trim it over time. Right. So Nvidia is a great example. Palantir is a great example. I might reduce my exposure from like 40 % of my portfolio, which is way too much, down to something like 25. And reinvest in NASDAQ? Reinvest in the NASDAQ, yeah. So I try to always make my money work for me instead of work for my money. So typically, if I don't know what to do with it, I'll put it in the indexes, treat that like a cash position. And then what happens is because some of my shares in these indexes are more than a year old, I can withdraw them and only pay capital gains tax.

11:10Alex Divinsky:So that's what I use to fund my next investments. Interesting. So when you talk about, just want to understand your income proportions, does most of it come from YouTube now or stocks are also like a practice? Yeah. So about 10 % of my income comes from YouTube, maybe a little more, 10, 15, something like that. The rest comes from investing. So you can say investing is your full-time job, right? Investing is definitely my full-time job. How much time does it take a week? You know, I treat it like a real job. So for me, I probably spend 40 hours a week researching. And so what I actually do is I try to monetize that research as many ways as I can.

11:45Alex Divinsky:So the first and primary way is definitely my own investments. You know, if you shut down my YouTube channel today, I would just be focused on investing for myself. Second way is sharing my research on YouTube, right? So that's my YouTube videos. Third way is I actually advise a couple of family offices, pretty small family offices, but same thing. You know, it's just like the content on my YouTube channel, but they're just asking more specific questions about more specific companies, some public, some private. And again, it's all AI and semiconductor focused, so chip focused. And they're just really looking to understand how to protect their wealth in the event of a bubble, right?

12:21So, you know... What's your advice there? Yeah. So don't have crazy amounts of exposure in one or two publicly traded companies would be a good start. Which is the opposite of your strategy. Yeah, which is the opposite of what I do, right? So I find that people who are like very, very wealthy, they're not really looking for, you know, two, three, five, 10x stocks, right? They're looking for safe bets that meet or outperform the market. And what they want to do is minimize their risk, right? So it's a very different strategy for them. You know, they're already diversified across a lot of different asset classes as well.

12:55So what they actually

12:56Alex Divinsky:end up looking to me for when I get in contact with them is to stress test an existing thesis in a company they already have. Like, will Amazon continue powering roughly a third of the internet? Or when things move to AI, will the next big cloud service look very different from Amazon Web Services? That's a great thing to think about that. So I do think that Amazon Web Services, Google Cloud, Microsoft Azure, they're putting themselves in a position to kind of have their cake and eat it too. They power a large portion of the traditional internet and they're investing heavily in AI to power a big portion of the generative internet, right?

13:32So I think because they're able to spend the many, many billions of dollars to build up that infrastructure, they'll be very hard to disrupt no matter what.

13:42Alex Divinsky:Because just like family offices, these are really like companies that are portfolios of technology, right? Google's not just a search engine. It's a cloud service provider. It's the Chrome browser. It's the Android operating system. It's Google DeepMind. You know, there's all these pieces to their portfolio. Yeah. So when Google loses a little bit of market share in the search space, for example, which was like in the news lately, you know, they dipped under 90 percent market share in search. They actually have a large portfolio of technologies, products and services to fall back on and other ways to make that up.

14:13So for an average investor like me who can't spend all my time investing and like researching, what would be the ideal portfolio if I want to win in this? Yeah. So I'm going to lose everything. Sure, sure. So I'm going to say something a little bit controversial here. So the typical advice, and by the way, I'm not a financial advisor, right? I'm not qualified to give financial advice. Typical thing you say. Yep, yep, yep. And it's very true. So like, you know, if you were to establish

14:37Alex Divinsky:like a serious amount of money in an account today, you should go seek a professional and talk to them, right? But if I was in your shoes, what I would do is instead of building the traditional advice that you would get today is build a 60-40 portfolio, right? That's 60 % stop. Yeah, like bonds is your age and the rest is stock. Exactly, and that proportion slides as you grow older, right? In my opinion, where you want to diversify is outside of stocks, right? So you want to hold some real estate. Maybe you want to hold some crypto or some precious metals or whatever, collectible, whatever you think is a good asset to hold, right?

15:12Alex Divinsky:And inside stocks, what you want to do is decide how much risk you're willing to take. And that really depends on what kind of stocks you want to buy versus how much you should put in indexes. So, for example, instead of a 60-40 stocks bonds portfolio, maybe it's a 60-40 indexes individual stocks portfolio, right? So, when my friends ask me— So, no bonds. So, in my opinion, no bonds, right? That's certainly not mainstream advice, but what I would do is I would put money in the S &P 500 and the NASDAQ. To proportion. Yeah, so I would prefer the NASDAQ. But if you aren't so comfortable with like the big ups and downs, that's really S &P 500 is a great index.

15:55Alex Divinsky:It's performed super well, long history and track record of great performance. A little more risky, but a little more rewarding over the long term would be the NASDAQ 100. Still very diversified, 100 tech companies across a wide variety of different technologies. You know, you got your NVIDIAs, your Broadcoms, but you also have software companies, cybersecurity companies, really all sorts of different technologies. So I would do the NASDAQ. And then the rest, I like picking individual stocks from like the top and the middle of those indexes because those indexes already have good criteria for a company to be in them.

16:30Alex Divinsky:So all the individual stocks I hold, like there's no magic, right? They're at the top of the S &P 500. They're at the top of the NASDAQ. And so what I really do is I try to find the losers in those indexes. And by losers, I just mean the historic underperformers, not that they're bad companies, just that their growth in the stock market has underperformed the index. And I just try to avoid those. So there's a good saying, you know, if you want to be a great gardener, it's not about planting the right plants. It's about stripping away all the things that stop those plants from growing. So what I try to do is, yeah, so that's it.

17:05Alex Divinsky:I'm just looking to plant my flowers. Those are the individual stocks and try to minimize my exposure to the things that stop them from growing. So for a 35-year-old like me, what would be the percentage of those things that you mentioned? NASDAQ, 100, some B500 and some individual stocks. Yeah. So if you never want to think about the market again, you do it once and then you go away for 30 years and you hope that you just want to retire. You still want to do dollar cost averaging, right? So that's what I would do. But a lot of people automate that, for example. So like, 100 bucks a month, 1 ,000 bucks a month, whatever you feel appropriate, you're just investing it into this mix.

17:40So what's the mix? Yeah. So the mix would be, in my opinion, something like 25 % S &P 500, maybe another 40 % NASDAQ 100. So that's already two-thirds of your portfolio. Now you're safe and in the indexes, right?

17:54Alex Divinsky:You can rest easy knowing you have 500 companies spread across your portfolio, right? And then the other 35%, 30, 35%, I would pick individual stocks. And the way I like to do it is I like to invest in things I know. So my channel is focused on sort of expanding people's knowledge about things so they feel comfortable holding those stocks. When they dip 20, 30, 50%, which NVIDIA does, Palantir does, Broadcom does, all these high rewarding stocks, they crash just as much as they go up, right? So they have high So hard, especially if that's your single portfolio. And whether you're a retail investor, an institution, a family office, whatever, your behavior and your psychology is 90 % of your returns.

18:39I strongly believe that. There was a great study by Fidelity and they said the top performers in their entire suite, you know, Fidelity manages trillions and trillions of dollars in assets. Guess what they all had in common? They were over 60 years old. They were all dead. They were all dead. So they, yeah, they just couldn't touch their portfolio. Right. So they let it ride. You know what I mean? They never sold, which means they never panicked. So that's a good reminder that the best thing to do almost always in the stock market is nothing. So even though my channel's about stocks and updates and buy this and buy that, it's because a lot of new people funnel in, they find my channel there, they have new money to allocate.

19:20Alex Divinsky:They just found me for the first time. But the average viewer I find that I talk to, they only make one or two investment decisions per year. They'll rebalance maybe quarterly. They'll get into a new stock. They'll decide to sell just like I did because they have a real family expense. They'll watch one of my videos on a stock they were thinking about selling and decide to hold some of it, maybe only sell half what they thought. So it seems action-packed when you're making content about stocks every week, but it really is like for the average viewer, it's supposed to be just a data point, another data point, another, and then they go about their life, you know?

19:53What about dollar cost averaging when the market is up and down so many times in a week? Like I remember five years ago, I would talk to my financial advisor and he would say like once a month. Yeah. Now we're like maybe once in two weeks. I don't know. Cause there's, it just happens fast. So I think dollar cost averaging, there's like no right answer. I do think dollar cost averaging more often makes a lot of sense because then you just

20:16Alex Divinsky:have like a smoother average. You can imagine if you only invest once a year and you, you accidentally hit a key. It was a bad day. Yeah. So there's definitely a lot of money can be made by buying low, right? Not just selling high, but actually buying at a great valuation. So dollar cost averaging more often sort of smooths that out for you. If you have one bad day, it's a smaller proportion. So let's say you invest$1 ,000 a month. Maybe that's really$500 every two weeks or$250 every week. You know, it's the same number, the same cadence. You still can automate, right? You don't have to do it math.

20:48You still automate. Yeah, you know, if you want to invest$20 a day, like it sounds a little silly, but it's really not a bad strategy because it just smooths out that whole,