Outsmart the Market With These 3 AI Picks-And-Shovels Stocks
Every emerging sector has its picks-and-shovels stocks that represent the crucial tools and equipment necessary to take advantage of opportunities. Gold prospectors required picks and shovels during the California gold rush of 1848. That’s the genesis of the phrase and provides a great framework, whereby catering to emerging opportunities is a valid business model itself. Levi Strauss (NYSE:LEVI) jeans are an enduring example born out of the California gold rush.
AI stocks have become today’s gold rush and are creating similar AI picks-and-shovels opportunities for supporting firms right now. These firms are helping leading names like Nvidia (NASDAQ:NVDA) and others to revolutionize our world through artificial intelligence (AI).
Elastic (ESTC)
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Elastic (NYSE:ESTC) is an analytics firm that continues to do very well as AI stocks boom. Shares have risen from $50 to over $80 year-to-date, but there’s room for Elastic to run higher for several reasons. Investors who simply consider that ESTC shares are nearly fully priced are missing the point.
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The truth is, Elastic has boomed over the past year, allowing the firm to affect a turnaround of sorts. A year ago, the company was expected to produce losses of $0.10 per share but broke even. It has been outdoing itself ever since, consistently exceeding earnings expectations.
Elastic has deep utility when used in conjunction with large language models to create apps and derive data and other insights. The ability of AI to allow users to create greater and more actionable insights is one of its core propositions. Better data leads to all kinds of positive outcomes. Elastic allows AI to get to those conclusions better, which is why it can become much stronger.
ASML Holding (ASML)
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ASML Holding (NASDAQ:ASML) is already headed toward 30% growth in 2023. That guidance came in during the Q2 2023 financial results release for the Dutch semiconductor giant. It’s a one-of-a-kind stock because it’s a one-of-a-kind firm.
The company sells hardware, software and services that help chipmakers etch patterns into silicon. That process — etching patterns into silicon — is fundamental to the creation of semiconductors. The more advanced it becomes, the more capable those chips become.
ASML is a unique firm in that it stands alone in its capabilities in relation to chip manufacturing. It sells massive lithography machines costing hundreds of millions of dollars that etch patterns onto chips. The company is also the most capable of doing so and has a near monopoly on the sector.
Nvidia has done as well as it has for the simple fact that its chips sit at the leading edge of performance. Companies scramble to procure those chips because that power is in extreme demand. No one else can match its prowess. ASML is similar in that no other firm can produce the bus-sized lithography machines it does at that level.
Taiwan Semiconductor Manufacturing (TSM)
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Taiwan Semiconductor Manufacturing (NYSE:TSM) is one of the clearest secular stock opportunities as AI unfolds.
It is the biggest foundry globally, providing most big chip firms with their chips. TSM is also important for geopolitical reasons and is firmly entrenched with the West in the China vs. U.S. chip war. TSMC is building plants in Arizona that are the centerpiece of that relationship. Construction has been fraught with significant issues, but the high-stakes nature of the project suggests it will succeed.
Revenues fell in September, and TSMC has been dealing with excess inventory and stagnant margins since early summer. However, that doesn’t dim the longer-term picture overall.
The U.S. is onshoring a lot of manufacturing, and that is especially important in this case. The nearer TSMC is to U.S. firms like Nvidia, the better. A bit of confidence in the overarching direction of the chip industry in a geopolitical sense will go a long way in convincing investors of the company’s total value.
On the date of publication, Alex Sirois did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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