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Whether you do or don’t like or use artificial intelligence (AI) technology, we can all agree that it’s here to stay.
From an investment viewpoint, if this sector can perform in Australia even remotely close to its American neighbour, then we might well be staring at a future goldmine for early investors.
As such, let’s take a look at Australia’s AI industry to uncover those companies at the forefront of the AI revolution. Before we do, let’s take a brief look at the US market.
The Nasdaq Composite has recovered rapidly since the COVID-19 pandemic, rising over 55 per cent from the 2022 low. This is largely due to investment in AI-related companies such as AWS, Google, Microsoft, Meta and NVIDIA, with NVIDIA’s share price up over 60 per cent this year alone!
Despite the Australian market being heavily weighted towards the financials and materials sectors, I believe the artificial intelligence industry is on the cusp of remarkable growth. This is being driven by the recent improvements in generative AI and a greater willingness to use AI in different industries.
According to projections, AI spending in Australia is expected to reach US$6.4 billion by 2026, contributing to an estimated A$22.7 trillion boost to the global economy by 2030. If that’s not exciting enough, February saw the tech sector just have its strongest gains in one month!
So, with this increased interest in the sector, let’s take a look at three companies that have caught my attention.
Appen Ltd (ASX: APX): Despite recent challenges, Appen remains a key player, providing data tools and services to global market players. The company’s new products are focused on generative AI applications, and with the share price trading at an all-time low, I believe the potential upside for investors in this stock is astronomical if Appen can get things right. It’s just too early right now to invest.
Next DC (ASX: NXT): NXT is Australia’s leading data centre company. It operates 13 centres across multiple countries and is in partnership with Microsoft. The share price is currently trading at an all-time high, and rightfully so. Therefore, while I believe now is not the ideal time to buy this stock as I believe it has run a little too hard in the short term, I will be watching it like a hawk, waiting for the next opportunity.
Brainchip Holdings Ltd (ASX: BRN): Brainchip is at the forefront of AI reasoning and analysis. Most notably, it is known for its Akida Neuromorphic Processor, and the company is forecasting it will be operating in a market worth over US$1 trillion by 2030. It has posted one of its best months in recent history, up over 150 per cent for the month of February. Unlike NXT, however, which is trading at its all-time high, I believe BRN has plenty more upside potential in the short to medium term; therefore, this is one to watch very closely.
What are the best and worst-performing sectors this week?
The best-performing sectors include Information Technology, up over 5 per cent, while Consumer Discretionary and Consumer Staples are both up over 2 per cent. The worst-performing sectors include Utilities, down over 1 per cent, followed by Energy and Real Estate, down around 0.5 per cent.
The best-performing stocks in the ASX top 100 include Next DC, up over 16 per cent, followed by Pilbara Minerals (ASX:PLS), up over 14 per cent and Reece (ASX:REH), up over 11 per cent. The worst-performing stocks include NIB Holdings (ASX:NHF), down over 10 per cent, followed by Fortescue (ASX:FMG), down over 8 per cent and Iluka Resources (ASX:ILU), down over 4 per cent.
What’s next for the Australian stock market?
If you had read my report at the start of February, you would have seen that I performed some seasonality analysis for the month, which resulted in statistics showing it was going to be a flat month. As we close out February, this is pretty much what happened.
This week also closed out the first round of reporting for 2024, which has produced an overall upbeat result, with over 65 per cent of companies either beating or meeting expectations.
Considering all the talk of recession and inflationary concerns, that’s not bad.
Now, if you’ve been keeping up with my reports over the last couple of weeks, you would know that I’ve been waiting for the All Ordinaries index to break its all-time high. Well, I can now finally post that it took until the last day of February for this to occur.
This is exciting news for our stock market, and I anticipate the first week of March pushing our index even higher, providing us with upward momentum for at least the next two to three weeks.
In last week’s report, I provided possible levels of future resistance being 8,150 and 8,750 points, so keep a close eye on these levels.
What’s also interesting to note in terms of trading volume this month is that the Materials sector was the most active. Materials turned over more than four times the volume of the next best sector, which was Energy.
This indicates that the materials sector was where most of the action was for traders and investors during the reporting period, so I’d encourage you to take a deeper look in this sector as you might find some hidden gems with the potential for fantastic returns.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au
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