SMCI - Best AI Angle: Semiconductors Software Or Hyperscalers?
2024-01-25 13:25:01 ET
Summary
- In my opinion, investors have three primary sub-sectors in order to have exposure to the AI revolution: Semiconductors, software and the hyperscalers.
- Today, I'll discuss each of these sub-sectors and why the AI catalyst will be a primary driver of innovation and investment returns going forward.
- I'll follow that discussion with some specific investment advice. Investors have three primary ways to invest in AI: Individual companies, diversified ETFs, or a combination of both.
- I will weigh in with my specific choices, discuss the risks of investing in AI at the present time, and how best to establish your positions.
At the risk of exposing you to yet another article on AI, I wanted to share an anecdote with you. Microsoft ( MSFT ) recently hit the rarefied $3 trillion market cap level and it reminded me of a conversation I overheard between two guys while grabbing a hot-bar at Whole Foods the other day. One said that the best and only way to invest in AI was via Microsoft, while the other was adamant that Nvidia ( NVDA ) was the proper play. It was a decent discussion, so I hung around longer than usual and got a fresh coffee from an auto-serve machine that was within ear-shot. And it got me thinking, what is the best angle for investing in AI: Semiconductors, software or the hyperscalers?
Now, some might advise you simply buy Nvidia, Microsoft and Super Micro Computer ( SMCI ), call it a day, and - as Tony Soprano would say - just "fuhgeddaboutit!" Indeed, over the past year all three have significantly outperformed the broad market as represented by the Vanguard S&P 500 ( VOO ) ETF (see graphic below). However, for the majority of ordinary investors, perhaps a more nuanced, less risky, and diversified approach is warranted. Today, I'll take a look at these three tech sub-sectors - semiconductors, software, and hyperscalers - and discuss the impact AI will likely have on them and why you need to own them. Then, I will offer some specific investment advice to insure you participate in what I consider to be a superior, secular, long-term, growth thesis that will last many years into the future: AI....
Best AI Angle: Semiconductors, Software Or Hyperscalers?