The world of stocks extends far beyond the flashy names dominating the AI market. While AI stocks may be the hottest trend currently, investors should also consider indirect plays that offer unique opportunities. Fidelity International, an investment firm, emphasizes the significance of looking beyond the immediate frontiers of AI technology. In a recent report, Fidelity recommends exploring stocks in semiconductor foundries, packaging technology companies, and memory companies. Indirect beneficiaries of AI can often provide solid investment potential, despite not visibly showcasing the direct benefits of AI technology.
Fidelity draws a parallel between the present AI boom and the era of the internet before the dot-com bubble burst. The fervor surrounding internet stocks at the time eventually led to a significant number of failures. Fidelity analysts predict a similar pattern with the AI industry. While certain AI stocks may be popular today, they might not emerge as future winners. Accordingly, Fidelity advises investors to widen their focus and explore diversified businesses that might not immediately reflect the advantages of AI. By doing so, investors can position themselves strategically for sustainable growth.
Semiconductor foundries, packaging technology companies, and memory companies are among the indirect AI plays recommended by Fidelity. Additionally, the report points to data center providers and utilities powering these data centers as potential beneficiaries of the AI trend. This broader perspective acknowledges the wide-ranging impact of AI beyond the boundaries of specific AI-related companies.
Undoubtedly, Nvidia has been enjoying the fruits of the AI boom. Since the launch of ChatGPT, Nvidia’s graphics processing units have proven vital for training and running the chatbot. Consequently, Nvidia’s share price has surged by almost 280% over the past year. However, other stocks within the AI-related sectors highlighted by Fidelity have also experienced considerable growth. The stock of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract foundry and supplier to Nvidia, has soared by over 50% in the past year. Similarly, South Korean memory chip giants Samsung and SK Hynix have seen their stock prices rise by more than 25% and around 100%, respectively. Memory chips play a crucial role in training large language models like ChatGPT, enabling them to process vast amounts of data and provide humanlike responses.
Moreover, suppliers of AI servers and chip equipment have also reaped significant gains. Shares of Super Micro Computer, a provider of high-end AI servers for data centers, have skyrocketed by approximately 1,175%. Dutch chip equipment manufacturer ASML, which supplies TSMC with lithography machines essential for chip production, has seen a 53% surge in its stock price in the past year.
Apart from these indirect plays, Fidelity suggests considering software and services companies. The report highlights the slower adoption of new technology among businesses compared to consumers. Consequently, companies specializing in data, integration, and governance services offer valuable assistance in bridging this gap. Firms in customer services, business process outsourcing, and music content can also present intriguing investment opportunities as they embrace and adapt to AI. Additionally, Fidelity identifies digitization leaders and enablers in manufacturing, industrial, and construction sectors as fascinating prospects due to the under-penetration of technology in these areas. Furthermore, the report emphasizes the significant role that design software companies can play in the long term.
As the AI industry continues to grow, investors can expand their portfolios by considering indirect plays that offer unique and potentially lucrative opportunities. By taking a wider perspective and staying informed about various AI-related sectors, investors can position themselves strategically for long-term success.
Frequently Asked Questions (FAQ)
1. What are indirect plays in the AI market?
Indirect plays refer to stocks that may not be directly associated with AI technology but can benefit from its advancement and adoption.
2. Why should investors consider indirect AI plays?
Investors should consider indirect AI plays because future winners in the AI market may not be immediately apparent. By exploring indirect beneficiaries of AI, investors can tap into potential growth opportunities.
3. Which industries are considered indirect AI plays?
Industries such as semiconductor foundries, packaging technology companies, memory companies, data center providers, utilities powering data centers, software and services companies, customer services firms, business process outsourcing, music content companies, and digitization leaders in manufacturing, industrial, and construction sectors are among the indirect AI plays suggested by Fidelity.
4. What is the parallel drawn between the AI boom and the dot-com bubble?
Fidelity draws a parallel between the AI boom and the dot-com bubble, highlighting the similarities in hype surrounding certain stocks. Just as many internet stocks failed to deliver long-term success, Fidelity suggests that not all AI stocks popular today will be the winners of tomorrow.
5. Can you provide examples of successful indirect AI plays?
Examples of successful indirect AI plays include Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, SK Hynix, Super Micro Computer, and ASML, among others. These companies have experienced significant growth due to their connection to the AI industry.
Definitions:
– AI: Artificial Intelligence, refers to the simulation of human intelligence in machines that are programmed to think and learn like humans.
– Semiconductor foundries: Companies that specialize in manufacturing integrated circuits (ICs) on behalf of other companies.
– Packaging technology companies: Companies that develop and produce packaging solutions for electronic devices, ensuring protection and mechanical support for the integrated circuits.
– Memory companies: Companies that manufacture memory chips, which are essential components in electronic devices for storing and retrieving data.
– Data center providers: Companies that offer facilities and services for housing computer systems and related components, such as servers, storage systems, and networking equipment.
– Utilities: In this context, refers to the companies that provide the necessary power supply to data centers for their operations.
– Lithography machines: Machines used in the semiconductor manufacturing process to transfer circuit patterns onto silicon wafers, a crucial step in chip production.
– Software and services companies: Companies that develop and provide software applications and services related to AI, data integration, governance, customer services, and more.
– Digitization leaders: Companies that are at the forefront of adopting and implementing digital technologies in manufacturing, industrial, and construction sectors.
– Design software companies: Companies that develop software tools for various design purposes, ranging from architectural design to product design.
Related Links:
– Fidelity
– Nvidia
– Taiwan Semiconductor Manufacturing Company (TSMC)
– Samsung
– SK Hynix
– Super Micro Computer
– ASML
Note: The URLs provided are for the main domains, not specific subpages.
The source of the article is from the blog scimag.news