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AI Investors Must Look Beyond NVIDIA

Published 06/20/2024, 08:22 AM
© Reuters

According to investment firm J. Stern & Co.’s June paper, AI investors need to look beyond Nvidia (NASDAQ:NVDA) despite the stock’s continued rise in recent years and its valuation surging to where it is now vying with Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) to be the most valuable publicly listed company in the US.

Will AI Stocks Keep Growing?

The firm noted the surge in Nvidia, stating: “The performance of Nvidia, the undisputed winner in commercializing AI, bears testimony to the huge surge in interest and the excitement around artificial intelligence (AI).”

While J. Stern has held Nvidia in the J. Stern & Co. World Stars Global Equity Fund since early 2022, they still remain “very positive” about the company and its prospects for value generation.

For AI overall, they believe applications and use cases have run far beyond available computing capacity and there is an “extraordinary demand for computing capacity due to the rapid and growing adoption of AI by all industries.”

As a result, J. Stern said Nvidia is only one of many companies they hold that will benefit from AI, and they believe that investors must look beyond the technology sector.

Why Is NVIDIA Stock Price Going Up?

The rise in Nvidia is obvious to see. The firm notes that it took the company took almost twenty-five years after its IPO as a producer of graphic cards for computer games to reach a valuation of $1 trillion, a level it broke in June 2023.

However, after just nine months, in March this year, its valuation doubled to $2 trillion, and early this month, it broke through $3 trillion.

“Nvidia has a strong competitive position and an attractive business model with strong free cash flow generation. It is at the forefront of addressing the demand for computing capacity and we expect it to continue to deliver strong growth in revenues, profits and cash flows,” said J. Stern analysts.

AI In Finance

The financial services sector has seen a strong uptake in the adoption of artificial intelligence. However, J. Stern notes that despite the initial headlines that AI would be used in the front office to make investment decisions, it is in the back office where the AI is delivering “significant productivity and operational improvements.”

They explain that the financial services industry relies upon extensive documentation for client agreements, terms of services and legal and regulatory compliance, and AI is helping to summarise complex terms and assist people in understanding things faster.

An example from JPMorgan is given. It is said that thanks to AI development, it has processed 50% more ‘Know Your Customer’ (KYC) files with 20% fewer people.

Healthcare Stocks Benefitting From AI

J. Stern & Co. analysts also highlight the significant potential for AI to revolutionize the healthcare sector, particularly in drug discovery. While tech giants like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) haven't yet achieved major breakthroughs, J. Stern & Co. sees promise in companies like Nvidia, which offers the "BioNeMo software suite" specifically designed to accelerate drug development with AI.

This technology assists in various stages, from identifying drug targets to testing effectiveness. J. Stern & Co. notes AI's potential to bring "a cost saving of between 25-50%" in drug development, a critical area with high R&D expenses.

The success of Amgen (NASDAQ:AMGN), an early adopter of BioNeMo, exemplifies the potential benefits, with the company reporting a "40x speed up in training" its AI models. J. Stern & Co.'s analysis suggests that healthcare companies investing in AI stand to benefit greatly.

Should Investors Buy More AI Stocks?

The firm believes it is important for investors to realize the scale of the AI opportunity and understand what it means for individual companies.

“We are in the initial stage of building out the technology infrastructure, led by Nvidia, the provider of computing capacity, and complemented by the many other industrial business that are providing solutions for the physical build-out,” they explain.

They remark that AI is still in its infancy, but it will eventually have a far-reaching impact across the broad economy for years to come.

“There will be winners and losers – those companies that incorporate AI will succeed, and those that ignore it will do so at their peril,” the firm concludes.

Discover more about AI stocks

Looking to assess the performance of other AI stocks? Our dedicated page offers a comprehensive list of alternative AI companies spanning various industries and technologies. Assess the performance across popular AI stocks including NVIDIA (Learn more: What is NVIDIA?)

If you are interested in a diversified approach to investing in AI, consider exploring AI ETFs, which offer exposure to a basket of companies involved in artificial intelligence technologies. Our page provides information on various AI ETFs, allowing you to assess their performance alongside individual AI stocks.

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