The AI sector is currently the hottest in the market, and Fidelity International is advising investors to consider indirect plays in addition to the obvious choices, such as NVIDIA Corp NVDA.
What Happened: Fidelity International, a financial services firm, has suggested that investors explore other avenues to capitalize on the AI boom. The firm highlighted that AI’s benefits may not be immediately apparent to investors in certain stocks, reported CNBC on Thursday.
"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.
These indirect AI plays include semiconductor foundries, packaging technology companies, and memory companies, according to the firm’s report. Fidelity also drew parallels between the current AI hype and the dot-com bubble, suggesting that the AI sector may follow a similar trend.
Despite Nvidia’s significant gains, Fidelity pointed out other stocks in the AI-related sectors that have also seen substantial growth. For example, shares of Taiwan Semiconductor TSM, the world’s largest contract foundry and a supplier to Nvidia, have surged over 50% in the past year.
In the meantime, South Korea’s leading memory chip manufacturers, Samsung Electronics Co SSNLF and SK Hynix HXSCL, have experienced significant increases, with Samsung surging over 25% and SK Hynix by approximately 100%.
These memory chips play a crucial role in training extensive language models like ChatGPT, enabling them to efficiently process vast datasets and produce responses that closely resemble human language when interacting with users.
Why It Matters: Nvidia has been at the forefront of the AI revolution, with its graphics processing units being used to train and run AI models. The company’s shares have soared by almost 280% in the past year.
Nvidia is expected to make further announcements at its annual AI conference, the Nvidia GTC, which could potentially stabilize the stock’s recent volatility and continue its significant upward trajectory.
Despite Nvidia’s dominance, some experts have expressed caution about the AI sector, warning of a potential bubble. Gene Munster, a tech venture capitalist, noted that there was talk of an AI bubble six months ago, but most of the high-profile mega-cap tech stocks have rallied since then.
On the other hand, Torsten Sløk, the chief economist at Apollo Global Management, warned that the current AI bubble is bigger than the 1990s tech bubble, raising concerns about the sustainability of the AI sector’s growth.
Image Via Shutterstock
Engineered by Benzinga Neuro, Edited by Kaustubh Bagalkote
The GPT-4-based Benzinga Neuro content generation system exploits the extensive Benzinga Ecosystem, including native data, APIs, and more to create comprehensive and timely stories for you. Learn more.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
