The Beginning Of AI, Or The End Of The Bubble?
$1.3T Market By 2032!
AI Stocks
Over the last year we have seen some incredible price action on some AI stocks of which you may have only heard of these recently.
These include:
Super Micro Computer (SMCI) - up 1,231% over the last 12 months
Nvidia (NVDA) - up 300% over the last 12 months
CrowdStrike Holdings (CRWD) - up 174% over the last 12 months
ARM Holdings (ARM) - up 157% since listing
Advanced Micro Devices (AMD) - up 138% over the last 12 months
Some investors will lead you to believe that this is a bubble and that soon the party may be over, however if you believe that Artificial Intelligence (AI) will become a huge part of our lives in the coming years then it may be worth having some exposure in your portfolio to Companies that have a heavy focus on AI.
AI Industry
Bloomberg Intelligence believe that generative AI will become a $1.3T market by 2032 and believe that this emerging market could grow at a 42% CAGR (compounded annual growth rate)
As we can see from the graph above the market is not only expected to increase in terms of revenue but also in terms of total technology spend.
Revenue:
2022 - $40bn
2032 - $1,300bn
% of Total Technology Spend:
2022 - 1%
2032 - 12%
AI Impact
As we can see below AI is also expected to impact industries like education with an expected Revenue CAGR of 53% between 2022-2032.
When comparing hardware and software impact of AI we can see that software growth is much higher with a CAGR of 69% expected versus hardware’s 33%.
5 AI Stocks To Consider
We recently reviewed a few AI stocks to consider in 2024 on our YouTube channel below:
You can also grab a copy of the valuation model used in the video above here:
NVIDIA
Nvidia has been one of the best performing stocks when talking about AI and has had some astronomical growth not just in terms of share price but also in terms of their revenue growth (and even their margins!).
Their revenue has grown over the last 5 years from $11bn to $61bn whilst also increasing their operating margin from 34% to 61%.
An incredibly important metric in our opinion is also the free cash flow which we can see from below has gone up astronomically from $4.3bn to $27bn.
Feel free to watch our latest in depth analysis of NVIDIA below where we discuss if it is too late to buy this Company.
Is It Too Late?
Whilst we see that a lot of AI companies have been exploding in just a matter of months we can see that there is some justification for this with an industry that is expected to grow considerably year on year. However, and this is an important point, valuation as always remains key.
If you are buying a company that already has a lot of growth baked into the price and they miss any of their targets then the share price will and rightfully so get punished.
It is important to consider as always your margin of safety when arriving at your acceptable buy price and to consider whether or not management’s forward guidance seems reasonable based on the historical performance and in comparison to industry expectations and competitor expectations.
Over the next few weeks on our YouTube channel we will be analysing in detail some AI stocks to consider and will be releasing a newsletter covering those that we see as still showing signs of strong undervaluation.
AI Stocks To Consider
From our latest AI episode, we considered the below stocks:
ACLS - Axcelis Technologies
Intrinsic Value - $203
Wall Street Upside 62%
AMD - Advanced Micro Devices
Intrinsic Value - $268
Wall Street Upside 27%
ON - ON Semiconductor
Intrinsic Value - $97
Wall Street Upside 24%
MRVL - Marvell
Intrinsic Value - $90
Wall Street Upside 21%
ADI - Analog Devices
Intrinsic Value - $252
Wall Street Upside 8%
Full episode below:
ETF’s To Consider
For those who prefer not to pick individual stocks there is also the options of ETF’s of which we have 2 to consider below:
SOXX - iShares Semiconductor ETF
Expense ratio - 0.35%
Top 5 Holdings:
NVDA - 11.83%
AMD - 9.79%
AVGO - 8.28%
QCOM - 6.41%
INTC - 4.73%
SMH - VanEck Semiconductor ETF
Expense ratio - 0.35%
Top 5 Holdings:
NVDA - 14.34%
TSM - 10.47%
AVGO - 10.15%
ASML - 10.09%
AMD - 9.56%
Conclusion
AI is here to stay and will generate a lot of revenue for many different sectors over the coming years and beyond. It would be worth reviewing your own portfolio to ensure that you have some exposure and to consider adding an ETF or some high-quality AI stocks which you believe to be undervalued.
If you’d like to support this work feel free to buy me a coffee. The proceeds will contribute to the running costs of the newsletter.
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Note
I am not a financial advisor or licensed professional. Nothing I say or produce anywhere, should be considered as advice. All content is for educational purposes only. I am not responsible for any financial losses or gains. Invest and trade at your own risk.