Goldman Sachs chief U.S. equity strategist David Kostin used his most recent Weekly Kickstart report to highlight the increasing flow of investment capital from major hedge funds to the stocks positioned to benefit from phase two of the artificial intelligence buildout.
The companies Goldman Sachs analysts have identified for phase two have outperformed the S&P 500 by 16 percentage points year to date. These companies, which are broadly involved with AI infrastructure, are up 26 per cent year to date on average.
In an in-depth report earlier this year, Mr. Kostin’s colleague Ryan Hammond leveraged Goldman Sachs’ team of technology analysts to forecast the stages of AI development and the stocks that would climb most in each.
Phase two, which appears imminent, involves companies that own the intellectual property used in semiconductor design, (ARM Holdings PLC and Synopsys Inc., for example), semiconductor design itself (Broadcom Ltd., Advanced Micro Devices Inc., Qualcomm Inc., Marvell technology Inc.), chip manufacturing (Intel Corp.), memory (Western Digital Corp.), semiconductor manufacturing equipment (Applied Materials Inc., KLA-Tencor Corp., Teradyne Inc.), data centre real estate (American Tower Corp., Equinix Inc.), hardware and equipment (Cisco Systems Inc., Arista Networks Inc., Amphenol Corp., Super Micro Computer, Corning Inc., Littelfuse Inc., Synnex Corp.), electrical power utilities, cloud computing (Microsoft Corp., Amazon.com, Alphabet Inc., Oracle Corp.), and security (Palo Alto Networks Inc., Crowdstrike Holdings Inc.)
Goldman Sachs also recently detailed the fastest growing overall AI stock purchases at hedge funds.
In order of popularity, these were Marvell Technology, TD Synnex Corp., Apple Inc., U.S. power utility AES Corp., Littelfuse Inc., Adobe Inc. and copper miner Freeport McMoran Inc. (Of this list, four - Marvell, TD Synnex, AES, and Littelfuse - were also on the list of stocks that would benefit from the phase 2 rollout.)
As always, investors looking to buy any of these individual stocks will have to complete extensive analysis first.
As for the timing of buying any of them, the Goldman Sachs strategists strongly imply that it’s early days for the AI theme and there is a lot of upside for a lot of these stocks. I expect that this is true but also strongly believe that at some unknowable point in the future – a few years from now as a guess - an AI bubble will pop, the same way there was an Internet bubble, cannabis bubble and bitcoin bubble.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
A&W Revenue Royalties Income Fund (AW-UN-T) As the pandemic faded and people went back to dining out, A&W boosted its payout several times. Its distribution is now slightly above prepandemic levels, yet the unit price has sunk to its lowest since late 2020, when COVID-19 fears were still rampant. Why have the units lost their sizzle? John Heinzl has some answers - and some advice on whether now’s a good buying opportunity.
The Rundown
If interest rates start to fall this week, it’s go-time for dividend stocks
It’s easy to justify hanging onto a cash equivalent investment product when you’re getting virtually risk-free returns of close to 5 per cent or more. But if the Canada of Canada starts cutting its overnight rate on Wednesday, returns from the hugely popular category of exchange-traded funds holding money in savings accounts, treasury bills and short-term corporate borrowings will edge lower. An alternative to consider if you’re moving money out of these products? Dividend stocks and ETFs, suggests Rob Carrick. And for those shopping for specific dividend stocks, Norman Rothery provides an update on the Frugal Dividend portfolio. (Updates on many of his other dividend portfolios can be found here.)
As gold surges, should investors bet on a rally they don’t understand?
Gold has staged a powerful but baffling rise in recent months. Its big gains force investors to confront a classic market dilemma: Should they pour their money into a rising trend? Or avoid a hot asset because they don’t fully understand what’s driving it? Ian McGugan has some insight.
Utilities are enjoying an AI tailwind. Can the sector shake off its dull reputation?
There are many good reasons to invest in utilities. They are recession-proof. The dividends are attractive. They are regulated and dependable. But is the rise of artificial intelligence, which relies on vast quantities of electricity required by data centres, now emerging as the chief reason to invest in the sector? You might come to this conclusion given the stunning rally of the past three months. David Berman explores the topic.
AI outperforms humans in financial analysis, but its true value lies in improving investor behavior
The next generation of robo-advisers might veer into the world of short-term trading and stock-picking. A recent study by researchers from the University of Chicago has shown that AI, specifically large language models that have been trained on vast amounts of text and can generate natural-sounding responses, can analyze financial statements as well as, if not better than, human analysts. But before you ask ChatGPT to suggest your next trade, there’s more to the story, says Preet Banerjee.
Rolling with the punches: Adapting financial plans in unpredictable times
As investors, we’re all familiar with the concept of having a solid plan in place. We set our goals, allocate our resources, and chart our course toward financial success. But what happens when life throws us a curveball? Sam Savarajan shares some thoughts on how to properly prepare for the unknown.
India markets rejoice exit poll prediction for a Modi landslide
Indian shares hit lifetime highs while the rupee gained and bond yields dropped, as investors were buoyed by expectations of sustained economic growth after exit polls indicated a decisive mandate and a third term for Prime Minister Narendra Modi. Many investors are expecting more gains to come.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
John Heinzl’s model dividend growth portfolio as of May 31, 2024
Nvidia leads global market cap gainers in May with AI-driven rally
Ted Dixon: Insiders buy as Badger Infrastructure stock pulls back from 52-week high
Monday’s analyst upgrades and downgrades
GameStop soars as ‘Roaring Kitty’ reveals US$116-milllion bet in Reddit post
Globe Advisor
Why Canadian asset managers are teaming with private market giants to launch new funds
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What’s up in the days ahead
Gordon Pape will present a stock pick in the high-flying U.S. utilities sector. Plus, David Berman shares some of his thoughts on the resurgence in meme stock and high risk investing.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff