Some are calling AI a “revolution” similar to the development of the Internet, or a modern-day “gold rush” with the potential to boost productivity and corporate profits. But some argue that this technique is just a “story” that investors are clinging to as stock prices continue to rise, justifying unwarranted price increases. Fortune 500 companies have spent billions of dollars on AI, but so far there is little economic data to prove its productivity-enhancing ability.
Still, most experts agree that when such benefits will be realized. And some companies are already cashing in on the AI boom, said Erica Klauer, technology equity portfolio manager at Jennison Associates, an investment management firm with $194 billion in assets under management. “AI is proving to be a worthwhile investment for many industries,” she said. luck. “This is a once-in-a-lifetime opportunity.”
Klauer and Jennison are focused on long-term bets on companies with serious growth potential, leaning into the AI boom and eating into shares of semiconductor giant Nvidia. Mark Baribeau, head of global equities, said: luck Late last year: “With generative artificial intelligence, we are entering the fourth era of computing. And the most important company in the fourth era of computing will be Nvidia.”
At the time, Baribeau highlighted Nvidia as a top stock for 2024, and the company has since soared more than 80%. Klauer says that even after the AI boom of the past few years, there are some key sectors that continue to drive growth for AI stocks like Nvidia. “There are probably two of the most important new markets that can monetize the investments needed in AI: healthcare and sovereigns,” she said.
Klauer highlighted medical imaging, genomics, and drug discovery as three areas in the healthcare sector that are already generating “much higher demand for AI services than previously anticipated.” But Klauer believes that the desire of nation-states to develop their own AI systems is what will actually drive the growth of some major AI companies.
“Some countries on the sovereign side do not want their models to be trained on American norms and customs. They have their own languages, their own archives, their own training in cultural nuances. , we want to have our own version of ChatGPT,” she said. “That's led these governments to explore their own AI initiatives. This is a great opportunity.”
Klauer explained that he is so bullish on nation-states' desire to join the AI game because it is not driven or influenced by economic conditions. This spending on AI will be done “more from a social and national security perspective,” which means stable long-term growth, she said.
The companies Klauer thinks will grow over the next decade are all companies that can tap into key healthcare and sovereign growth areas by providing chips, chip-making equipment and data centers running AI. It may not be cheap, but there aren't many good ones.
So, for investors with a long-term outlook, here are Klauer's top three AI stocks for the next 10 years.
ASM lithography
The first company Klauer talked about was semiconductor equipment giant ASM Lithography. You've probably never heard of this $402 billion market cap company, but there's a good chance you're currently using its technology without even knowing it. ASM Lithography makes equipment that enables other companies to make semiconductors, such as lithography equipment and integrated circuits.
Today, all of the world's most advanced foundries (factories that produce semiconductors), including Taiwan Semiconductor (TSMC), Samsung, and Intel, use ASM lithography technology. Also, as companies release new AI chips every year to accommodate new generative AI systems, semiconductor equipment becomes increasingly sophisticated, which will benefit incumbents like ASM Lithography, Klauer said. he said.
She claimed the company has a Warren Buffett-style moat. Berkshire Hathaway's Buffett famously argued that good business models often have large barriers to entry, or moats, that prevent competition from coming in and ruining the party. Klauer said ASM lithography's moat is a technology that allows semiconductors to lay down the layers of transistors needed to function.
“ASM lithography is a technology that allows us to photograph and place transistors that are 1/100, 1/1000, or 1/5000 the width of a human hair,” she explained. “This is a core competency in highly complex optics, a market that ASM lithography has essentially dominated for many years. And as chips become more complex, this impacts the company's strength as a technology leader. This is reflected in the rise in prices.”
Nvidia
Semiconductor giant Nvidia is Klauer's second-highest AI stock over the next 10 years. After soaring 1,743% over the past five years, some investors are starting to question whether semiconductor giant Nvidia can stay afloat, but Klauer and Jennison Associates still believe in the idea.
“At Jenison, we always take a long-term view. And we believe we can execute, profit, share, maintain or raise prices, and innovate to expand our market over time.” “We tend to stick with companies. There are many companies that meet this requirement, but Nvidia is literally at the top of the list,” she said.
Klauer highlighted growth opportunities in software, self-driving cars, robotics, augmented reality and gaming over the next decade. He also pointed out that NVIDIA is already successfully leveraging his AI efforts in the healthcare industry. The company will generate more than $1 billion in healthcare revenue in fiscal 2024, three years ahead of its previous goal.
“So from a revenue growth perspective, from a margin perspective, I think NVIDIA is in a very good position. The depth of the management team, the depth of the bench, is great,” Klauer said. I added. “And from a balance sheet and operational management standpoint, the company is well-run, and certainly Nvidia is at the top of that list.”
microsoft
Microsoft will be Klauer's last top AI stock of the next decade, but it's not the company's investment in now-famous AI startup OpenAI that has her bullish. Microsoft's cloud computing platform Azure is the biggest attraction.
Azure has been stealing market share from rival Amazon Web Services in recent years. And in the final quarter of last year, Azure's revenue grew 30% year-over-year, while AWS only grew 13% year-over-year. Klauer expects this rapid growth to continue amid the AI boom. Over the next decade, Microsoft plans to provide the “essential backbone” to what Klauer calls an “AI factory.”
“Right now, we still have probably 20% of all workloads accelerated in our data centers. And we'll probably not only reach 100%, but the net number of workloads will also reflect positively. “Because there are so many reasons why you want to create new workloads that are going to be accelerated because they're useful across so many different industries,” she said.
Honorable Mention: Broadcom
Klauer said picking his top three AI stocks is “like asking me to pick my favorite child,” so I'll give Broadcom a quick honorable mention here. The $625 billion tech giant is known for making a variety of semiconductor and infrastructure software products, but what Klauer believes is a good long-term bet for Broadcom is networking. It's a chip. Getting enough computing power to work with AI systems requires huge data centers filled with thousands of computers, and network chips are essential to these data centers.
“Networking chips are like traffic cops directing traffic lights around data centers,” Klauer explained. “That's why they're so important. And the ability to direct traffic is becoming faster and faster.”
“There's actually one company that dominates in the most important respects in our review, and that's Broadcom, which is why it's also one of our favorites for the long term,” Klauer said. He insisted.