By Lucas Downey, Contributing Editor, TradeSmith Daily
A.I. excitement is everywhere you look…
And I'm not just talking about ChatGPT.
Analysts have touted countless use cases for artificial intelligence, even in off-the-run areas like cybersecurity, health care, and trucking.
When you sit and think about it, is it really a hard stretch to assume that A.I. will impact a lot of industries for the better?
Certainly not…
But, don't get too carried away dreaming of a world where A.I. powers absolutely everything.
I've been investing long enough to see a few new technologies hit the market – namely cloud computing, 3D printing, and solar energy.
All these technologies were exciting at the time, and many are still relevant today. And during that time, plenty of stocks were touted as the next big thing.
But it's important to understand that every tech movement comes with its share of winners and losers.
That's how I see the A.I. race unfolding. There will be a handful of standout, long-term winners… and, sadly, many losers too.
It's important to figure out how to separate an A.I. winner from a loser… and to do it now, while it's still early days.
So for today's data-driven piece, I'm going to tell you of one way to bet on A.I. that has a high likelihood of playing out well in the long term…
I'll even break down one of my favorite stocks to own for this trend, too…
And I'll share why it's clear to me it's still not too late to buy great stocks just like it.
Semiconductors are Your Picks-and-Shovel A.I. Play
Rule No. 1 for tech trends: Don't follow the fluff. Follow the money.
There's plenty of high-fluff promises being made in A.I. right now. It's important to separate the wild ideas about what A.I. could maybe someday do… with what it's already doing. And what it needs to do it.
The large language models that are at the heart of the A.I. story today require ultra-fast computing power to work. Chip speed and performance is paramount.
As data needs for these models become more intricate, the demand for advanced semiconductors will only grow.
This is why, since the release of ChatGPT on Nov. 30, 2022, semiconductors have been one of the best-performing areas of the market.
Check out the chart below. It shows the performance of the VanEck Semiconductor ETF (SMH; black line below) from Nov. 30, 2022, to today.
It's more than tripled the S&P 500 ETF (SPY; orange line) and nearly doubled the tech-heavy Nasdaq 100 ETF (QQQ; yellow line):
Clearly for the A.I. gold rush, we should focus on the "picks and shovel" plays. The fundamental needs behind the technology itself.
SMH is chock-full of high-quality companies that fit the bill, including Applied Materials (AMAT) Taiwan Semiconductor (TSM), and more.
But one name, a leading stock in the semiconductor industry, has been on our radar for a long time at TradeSmith: KLA Corp. (KLAC).
And if it's not on your radar, it should be. Here's why…
A Superstar Semiconductor Stock for Years to Come
KLA Corp. is a chip supply chain leader, providing tools for inspection and defects. That means as large chip customers spend on A.I. and other semiconductor areas, KLA is part of that growth.
And while stories are good, true fundamental attributes are better.
First, consider that KLA has a rock-solid Quantum Score of 75.9. That's Jason Bodner's proprietary measure of a stock's fundamentals, technicals, and institutional money flows.
This green reading indicates that the company has stellar fundamental and technical attributes, forming one easy-to-understand ranking:
A lot goes into these scores, but the overall number is the key. If the stock is in the "sweet spot" between about 65 and 85, it's in a strong uptrend with great fundamentals without being wildly overbought.
Speaking of great fundamentals, here's another two numbers that say you should keep this stock on your watchlist…
On a five-year basis:
Sales grew from $4 billion in 2018 to $10.46 billion in 2023. That represents a 21% compound annual growth rate (CAGR).
Net income grew from $802 million in 2018 to $3.38 billion in 2023, amounting to a whopping 33.4% CAGR!
With growth like this, you'd think they'd be shareholder friendly. And you'd be right.
Located 30 miles from Baltimore — Jeff Bezos has been quietly investing in one tiny company that's ground zero of a tech revolution that's going to change everything. Bank of America said the technology would be, "Bigger than fire and bigger than all the revolutions that humanity has seen."
KLA is the poster child of what it looks like to be a superstar quality stock. Whenever a stock fires on all three of these rare characteristics, pay attention.
We have a unique blue signal that fires when this unique setup hits. Every time it does, that means it landed in our Top 20 list for institutional buying activity. In other words, based on our analysis, it was one of the most unusually bought stocks that Wall Street Big Money players were buying that week.
Since ChatGPT was released, KLAC triggered the rare blue buy signal… and it kept repeating:
Now that is a chart signifying strong demand with all-star attributes.
Few companies have similar profiles.
Focus less on the fluff stocks and more on those with outstanding fundamental qualities that reward shareholders year after year.
Regards,
Lucas Downey, Contributing Editor, TradeSmith Daily
P.S. As I mentioned earlier, KLA is a well-known TradeSmith name… one that we hold in Jason Bodner's TradeSmith Investment Report.
Jason uses the same process we showed you today to find high-quality growth stocks in a broad range of market sectors. With this process, his system has proven its ability to beat the S&P 500 by 7-to-1 over the last 25 years.
If you're looking for his latest breakthrough play, a health care stock released just days ago… Click here.
Get Instant Access
Click to read these free reports and automatically sign up for research throughout the week.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
Post a Comment
Post a Comment