Want to cash in on the AI boom? Buy these 2 lesser-known stocks, portfolio manager says
As the buzz around artificial intelligence continues to build, investors are on the lookout for under-the-radar sectors — and stocks — best placed to benefit. Carnegie Investment Counsel’s Christopher Carey is no different. Carey, a portfolio manager at the U.S.-headquartered investment advisory firm which manages around $4 billion, estimates that returns from AI will be across “multi-years [and] decades.” “I still believe that we are in the very early innings of an AI revolution in terms of the way we live and work. AI companies have a very, very large moat, not only on the hardware side, but also, on the software side. And that’s pretty defensible thus far,” he said. “With margins of AI companies being as high as they are, there will definitely be tons of companies behind the scenes working to chip away at this advantage,” he noted, adding that the likes of Nvidia , Amazon , Microsoft , Broadcom and Alphabet ‘s Google already have a “strong lead.” Speaking on June 26, the long-term investor said he was also looking beyond the headline makers “to find the best companies and hold them.” Power sector plays One segment in particular stands out to Carey: the power sector. Artificial intelligence requires vast amounts of data processing to function — and data processing requires electricity. “I think people really appreciate the size and magnitude of the U.S. grid, and what a pain it is going to be to upgrade it over the long term, so I don’t really see anything as a long-term negative for companies or in the wider power management ecosystem,” he said. Among the names Carey is bullish on is power management company Eaton . He said it is set to benefit from heightened demand for the setup and upgrade of electrical grids as more data centers are required. He added that Eaton is among the “front-runners” in this segment, thanks to its scale, size, equipment and inventory. Shares of the U.S. power management company have had a bumpy ride over recent days, but remain up nearly 30% year-to-date and 54.4% in the last 12 months. Of 25 analysts covering the stock, 17 give it a buy or overweight rating, according to FactSet data. They give it upside potential of around 11%. Also on Carey’s radar is electrical equipment manufacturer Powell Industries . He noted the “strong demand” for the small-cap’s packaged solutions and products. “They are benefiting massively from these data center build-outs … because that creates a lot of demand for all their products,” he said. Shares in Powell have slumped 20% over the past month, but remain up 62% year-to-date and nearly 137% in the last 12 months.
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