-
Enthusiasm for AI has revived in recent weeks after investors worried about returns over the summer.
-
In the next investment wave, Goldman Sachs analysts recommend “platform stocks” such as Microsoft and Datadog.
-
Analysts are recommending stocks that will drive immediate adoption of AI and enable broader adoption.
Come visit, Nvidia.
As investment in artificial intelligence rebounds after the excitement waned over the summer, a new crop of stocks is set to benefit from the next wave of money flowing into the fast-growing sector, according to Goldman Sachs.
In the next round of AI investments, Goldman Sachs analysts say investors should look beyond the obvious choices (Nvidia and AI infrastructure companies) and toward a select set of platforms looking to build a direct application of AI.
“Our equity analysts believe that ‘platform stocks’, including databases and development tools, will be the main beneficiaries of the next wave of generative AI investments. These platforms enable the best use of AI infrastructure while providing building blocks to build next-generation applications. the analysts said in a note on Thursday.
The analysts cite Microsoft, DataDog, MongoDB, Elastic and Snowflake as the best-positioned platform stocks to roll out AI-integrated applications.
While many of these platform stocks have fallen this year due to near-term fundamental weakness, they have historically low valuations and stabilizing revisions that set them up well for the AI investment recovery, the analysts say.
The analysts’ recommendations come as investors continue to focus on Nvidia and the companies building out its AI infrastructure, such as semiconductors, cloud providers and data center REITs.
The analysts say share prices for these stocks will likely continue to rise, but returns will be driven more by earnings than valuations.
“Expected future returns could be limited by higher starting valuations, although valuations have historically been a poor short-term signal for large-cap stocks,” the analysts said. more moderate returns for those “phase 2” AI infrastructure stocks.
In general, platform stocks are the exception among other “phase 3” stocks – stocks with the potential to monetize AI through additional revenue generation, such as in software and IT services – because the timing of monetization AI is still uncertain.
The same goes for “phase 4” stocks, or companies that would benefit from widespread adoption in general, as that will likely take years, the analysts said.
“We believe that the rollout of applications among Phase 3 stocks is a necessary prerequisite before investors will gain confidence in owning Phase 4 stocks with the largest potential earnings gains from AI-related productivity,” they said.
The analysts’ comments come after flows into AI stocks waned over the summer as traders expressed concerns about returns on big AI spends. That led to sharp underperformance in July, and in early August Nvidia plunged as much as 27% from its all-time high in June.
Now the stock is trading near its record highs again as AI trading has accelerated again in recent weeks on the back of Federal Reserve rate cuts and strong macro data.
Read the original article on Business Insider
