Key Points
- AI stocks may be the hottest on the market right now, but investors should consider indirect plays as well, said Fidelity.
- There are stocks where “the benefits of AI may not be immediately obvious to investors,” the financial services firm said.
- These AI plays include semiconductor foundries, packaging technology companies and memory companies, the investment firm said in a report Wednesday.
There’s a whole world of stocks beyond flashy AI names such as Nvidia for investors looking to ride the latest tech wave, according to investment firm Fidelity International These indirect AI plays include semiconductor foundries, packaging technology companies and memory companies, the investment firm said in a report Wednesday. “Rather than focusing on so-called hot AI stocks – because names that are big today may not be the winners of tomorrow – investors may consider the many indirect beneficiaries, or diversified businesses, where the benefits of AI may not be immediately obvious to investors,” Fidelity said in its report. It highlighted similarities between the current AI hype and the “internet era” before the dot-com bubble burst: “Internet stocks were the ‘hot stocks’ back then and while there were some successful companies, many failed. In our view, AI will follow a similar trend,” said Fidelity analysts. As such, it encouraged investors to look further afield for stocks to invest in. “These include semiconductor foundries, packaging technology companies and memory companies. Further downstream, data centre providers and even utilities providing the energy to power these data centres may feel a tailwind,” Fidelity said. The AI boom that started with the launch of ChatGPT in November 2022 has been a particular boon for Nvidia , whose graphics processing units are used to train and run the chatbot. The chip designer’s shares have skyrocketed almost 280% in the past year. However, looking beyond Nvidia, stocks in the AI-related sectors outlined by Fidelity have also been on the up. Stock of Taiwan Semiconductor Manufacturing Company , the world’s largest contract foundry and Nvidia supplier, are up over 50% in the past year. Meanwhile, South Korean memory chip giants Samsung and SK Hynix have surged over 25% and around 100%, respectively. Memory chips are required to train large language models such as ChatGPT to process vast quantities of data and generate humanlike responses to users’ prompts. Other indirect beneficiaries such as AI server and chip equipment suppliers have also seen significant gains. Shares of Nasdaq-listed Super Micro Computer , a supplier of high-end AI servers for data centers, have soared around 1,175%, and those of Dutch chip equipment manufacturer ASML , which supplies TSMC with lithography machines critical for making chips, have surged 53% in the past year. Fidelity also said it was worth considering software and services companies. “Unlike consumers who can adopt new technology very quickly, adoption among businesses is much slower. This is where these companies can help, in areas such data, integration and governance services,” the report said. Customer services firms, business process outsourcing and music content companies could also offer opportunities, said Fidelity, as they “embrace and adapt to AI.” “Digitization leaders and enablers in the manufacturing, industrial and construction sectors, where technology is still very under-penetrated, are looking interesting,” the report said. “We also believe design software companies have a significant role to play in the long term.”
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