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Here’s a quick take on how AI stocks have fared so far this year (to July 11): Super Micro Computer shares are up 212%, NVIDIA shares up 164%, Taiwan Semiconductor up 82%, and DroneShield up 476%. And there’s more where that came from.
Using the moomoo share-trading platform’s heat map feature we can see just how positive investors are toward the artificial intelligence and related sectors: it reveals 77% growth in semiconductors (year to July 12), 34% growth for internet stocks and 59% in computer hardware for the US market.
The fourth industrial revolution, powered by AI, is just getting started. So, if you haven’t invested yet, you have not missed the boat.
Four (more) reasons to believe in the AI sector
- The generative AI market is the sector with the strongest forward compound annual growth rate (CAGR). Bloomberg estimates it will be a $US1.3 trillion market by 2032, with generative-AI-focused spending to grow at a 100% CAGR to 2032.
- Some of the world’s biggest companies, including Microsoft, Meta and Google, pledged a $US140 billion spend on AI this year. Meta alone promises to order more than 350,000 NVIDIA chips (costing at least $US1.05 billion, assuming it buys the H100 or H200 chips worth $US30,000 to $US40,000 each).
- The AI and chip sector is backed by government (fiscal support). Over the past six months the US and European Union committed $US81 billion to the next generation of semiconductor companies, to reduce dependence on Chinese chips. Meanwhile, China created a $US47.5 billion chip fund to support its manufacturers.
- Most global AI chip demand is from tech businesses for datacentres. But AI chips are having a ‘tip of the iceberg moment’, with demand set to broaden to industries such as healthcare, agriculture and staples. There is a plethora of companies yet to tap into AI to increase efficiencies, add customers and decrease costs. Bloomberg tips spending on AI will take up 10 per cent of companies’ budgets by 2032.
Case in point, NVIDIA recently inked partnerships with companies such as Novo Nordisk, J&J and GE Healthcare. These collaborations will have a material impact on NVIDIA’s revenue later this year and next, which is very exciting for shareholders. Novo Nordisk will build a supercomputer using NVIDIA chips to discover new medicines and treatments. It will be Denmark’s first supercomputer. This illustrates not only demand from new sectors, but new geographies.
Sectors to watch…
So, considering that, and predictions that inflation/interest rates will stay higher for longer, sectors set to benefit from the AI pivot include:
- AI, semiconductors and IT companies
- Commodity metals required for AI/chips including copper, aluminium and silver (up 16%, 6% and 37% respectively over the past six months)
- Clean energy including uranium – data centres will need cheap, clean sources of energy to keep running, bolstering uranium to a record high price
- Fossil fuels – the oil price is up, and is likely to rise further, as shipping demand is increasing for transportation of chips, commodities and the like (note that oil markets remain in restrictive territory with the Organisation of the Petroleum Exporting Countries and cooperating countries cutting production as the northern hemisphere summer begins).
… and, Stocks to watch
Investors may be best served favouring quality stocks in the AI space, companies that can sustain higher interest rates and grow earnings and profits. These companies have high, recurring cashflows, quality clients, and low debt-to-equity.
How do you find them? Use the moomoo app to check earnings per share and revenue estimates (as well as other financial indicators), as it is earnings and earnings upgrades that drive share price growth.
AI, semiconductors and IT
- NVIDIA controls 90% of the global Graphics Processing Unit (GPU) market. It’s the only mega cap in the world with forward revenue growth of 98%, largely derived from the world’s biggest companies. It is the biggest holding in the world’s biggest semiconductor exchange traded funds: SOXX and SMH.
- Taiwan Semiconductor Manufacturing Company is the world’s leading foundry business that works with all major chip and IT companies, where it gets 54% of its revenue (Apple (23%), Qualcomm, AMD, NVIDIA, Broadcom, Sony, Marvell, Amazon). It is the second biggest holding in SMH (the chip ETF).
- NEXTDC
- Altium
- Megaport
- Audinate
- Droneshield
Commodities
- Sandfire Resources’ revenue is expected to grow 33% next year and the market is telling us this could be a stock to watch as it’s delivering strong returns and outperforming other copper companies such as BHP. Sandfire shares are up about 23% since January 2, 2024.
- Also watch WIRE, the Global X Copper Miners ETF.
With the price at record high, uranium is a sector of particular interest, with key investments including:
- The world’s biggest uranium ETF, URA, pushing up to 11-year high, rising about 15% since January 1
- Nuclear energy groups Constellation Energy, Vistra Corp and NRG Energy
- ASX uranium darlings such as Paladin Energy and Boss Energy (although they are not profitable companies, they have delivered impressive returns)
- Oil and gas companies to watch include Occidental, owned by the famous Warren Buffett via Berkshire Hathaway.
This sector is especially volatile, so treat your investments with caution and consider using moomoo’s sentiment indicator and charts to plot your entry and exit.
Jessica Amir is one of Australia’s leading market strategists and commentators, appearing on TV, radio and online and print news to share her views on macroeconomics and investments. She works as a market strategist with moomoo Australia.
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