by Bryan Perry
May 29, 2024
Millions of investors are just now beginning to get up to speed on the topic of AI and the promise it brings to those that invest and trade in the right AI stocks. Depending on which forecast one follows, the growth projections are not just huge, but are by some measures accelerating, as AI is finding broader applications.
Artificial Intelligence is having a profound impact on various industries. Some that stand out include manufacturing, medical testing, aerospace, defense, advertising, education, healthcare delivery, carbon emission reduction, agriculture, customer service, cybersecurity, hospitality, transportation, product personalization, managing the gig economy, software development, content creation, autonomous vehicle navigation, finance, banking and insurance, information technology and too many others to mention.
Investors live in an amazing time, when such a powerful, disruptive and transformative advancement in technology has what some believe, is a multi-year runway in front of it. Those that took the arrival of the Internet seriously in the 1990s made a fortune. I bring AI to light because the market has come to believe the monetization of the AI transformation is similar for portfolios going forward.
Even the sleepy utilities sector, which has been weighed down by interest rates being higher for longer, is trading sharply higher on the notion of rapidly increasing demand for electricity to power the football-field sized data centers sprouting up all over the country and around the world. Industrial stocks charge higher on the promise of retooling manufacturing with 24/7/365 AI-driven robotic production lines. Medical research sees no limit as to how AI will crunch data to propel new therapies to FDA approval.
And the list goes on and on.
The AI revolution doesn’t care about geopolitics – or the Trump versus Biden election, or climate change, or the border crisis or the culture wars. To those of us with long memories, it is like when UUNet Technologies Inc. (UUNT) sold the first T-1 virtual private network connection to the Internet in 1988. UUNET was the fastest-growing Internet Service Provider (ISP) in the mid-90s, doubling its capacity every few months. UUNET completed its IPO at $14 in May 1995, raising $50 million. UUNET was acquired by Metropolitan Fiber Systems (MFS) in August 1996 for $2 billion, 40 times its IPO valuation.
In a more recent example, it’s like when Steve Jobs introduced the first iPhone in 2007. AI is just as big, if not bigger, because of how fast it can be scaled. Today, the global AI market is worth an estimated $196 billion, having doubled in size since 2021 ($95.6 billion) and it is projected to grow 10-fold by 2030, reaching nearly $2 trillion. Spending on AI-centric systems is forecasted to surpass $300 billion in 2026, with a compound annual growth rate (CAGR) of 27% from 2022 to 2026. Between 2022 and 2030, the global AI market is expected to grow at a CAGR of 33%. Barring worst-case scenarios (World War III or a default by the U.S. Treasury), there seems to be a runway for stellar growth in AI for the next 3-5 years.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Source: NextMSC
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There are several ways to participate – through those companies that provide infrastructure that support enterprise data, workloads across various domains, deployment of tools to install machine learning (ML) models used in open-source frameworks and databases, makers of advanced memory and storage systems, companies offering full-featured AI-enabled smartphones, notebooks, PCs, and hardware.
AI For Income Investors
AI investing isn’t just for growth investors. Income investors can fully capitalize on this mega-trend by way of a proactive covered-call option strategy. Based and the leading companies that have the war chests of cash to deploy AI at scale, investors can enlist a hearty number of stocks for both growth and income.
At a time when inflation has raised our cost of living, yields on most asset classes are not keeping up with inflation. The good news for those seeking income from the AI sector is that option premiums on the top AI stocks are rich enough so that selling call options well out-of-the-money can possibly generate income stream while managing risk of the underlying positions called away (assigned).
It is rare when a new technology touches most of the best-of-breed stocks in so many sectors, where the growth catalysts are being revised broadly higher. That means all 11 S&P 500 market sectors are available to rotate in and out of, with arguably great stocks within the top 10 holdings of each sector ETF. But for generating income from writing covered calls, it stands to reason that the rapidly improving fundamentals regarding capital investments into those AI-Centric companies will experience higher sales/earnings growth and higher volatility. Option premiums expand when stocks demonstrate higher volatility, and as we have all seen in 2023 and 2024 – the AI sector is indeed volatile.
Income investors can diversify their risk by working with the ETFs that have a high concentration in AI stocks. In my experience, the VanEck Semiconductor ETF (SMH) is one of them, representing the leading chip and chip equipment stocks that are essential to the growth of AI.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Why June Could Bring a Return of $90 to $100 Crude Oil Prices
Income Mail by Bryan Perry
How to Add Premium Income from Selling Covered-Calls in Big Cap AI Stocks
Growth Mail by Gary Alexander
Remembering Our Dark Summers 50 and 100 Years Ago
Global Mail by Ivan Martchev
The Stock Market is Channeling Yogi Berra
Sector Spotlight by Jason Bodner
Don’t Worry: Be Healthy, Happy (and Richer)
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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