Wall Street is looking beyond the obvious megacap stocks to find the next leg of the artificial intelligence trade.
Betting that the Magnificent Seven may be running out of steam after an 18-month rally, some investors are turning their attention to what Melius Research dubbed “AI laggards.” This group, which includes Intel Corp., Advanced Micro Devices Inc., and International Business Machines Corp., have exposure to the AI theme but failed to keep up with gains for the biggest AI winners in the first half of the year.
All three have outperformed over the past month, while AI poster child Nvidia Corp. has slightly dropped in that period. Chip stocks broadly fell Wednesday after Bloomberg reported that the Biden administration is considering using the most severe trade restrictions available if companies continue giving China access to advanced chip technology, although Intel rose 6.6%.
IBM shares swung between gains and losses in early trading Wednesday, after five days of gains.
Crucially, the laggards also have lower valuations and bars to clear in terms of sentiment and earnings expectations, suggesting they could be well positioned for the rest of 2024.
“We are believers in a ‘catch-up’ trade for some in semis, hardware and even software — those with lower expectations,” Melius analyst Ben Reitzes wrote in a note this month, adding that a similar pattern occurred in 2023, when first half “underdogs” did well in the second half.
Reitzes also included Apple Inc. on his list of stocks that underperformed in the first six months. Shares in the iPhone maker have been rising steadily since April, preceding the rotation into other laggards, but have been especially strong since Apple demonstrated long-awaited new AI
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