Opinion: Most AI, software and semiconductor stocks are a crowded market right now

There are still great opportunities to invest in the potential of artificial intelligence. In an April 2023 article I highlighted that artificial intelligence would be “a multi-billion dollar revolution.” At the time, I noted that some of the top AI companies included Nvidia, Alphabet GOOG,
-0.67%
and maybe Microsoft MSFT,
+0.37%.
I also cautioned against owning small-cap AI stocks, including C3.ai AI,
-4.71%,
CXM CXM sprinkler,
+2.84%,
BigBear.ai BBAI BBAI,
+19.62%
and SoundHound.ai SOUN SOUN,
-19.94%
– and I still do.

I’ve been believing in the AI ​​revolution since I started buying Nvidia and wrote about it for MarketWatch in 2016. We want to continue investing in this amazing revolution, but it feels like a crowded sector right now. We don’t want to fall into the trap of thinking that every tech company that mentions AI is a good investment. So let’s examine the key underlying trends powering the AI ​​revolution and find the best companies to invest in for the long term.

First, it’s clear that major AI companies are all racing to be the first to build artificial general intelligence (AGI). Most Likely Winners: Meta Platforms META,
+2.29%
or Tesla TSLA,
+0.50%.
Both of these companies are spending huge sums and entrusting their best and brightest employees to build AGI for their internal use.

The current limiting factor for artificial intelligence is computing power. Meta and Tesla are dedicating their computing power to training their AI models. This differs from Microsoft, Amazon.com AMZN,
+0.86%,
Oracle ORCL,
+1.56%,
and even Alphabet, which sells its valuable computing resources to third parties for AI training. This translates into short-term revenue for these companies, but we believe that AGI will be the most valuable technology ever created, and cloud providers will regret not dedicating more resources to be the first to understand AGI.

Cast a wide net

We met a few other companies that could be major beneficiaries of the AI ​​revolution. We like Autodesk ADSK,
+2.80%
(the maker of AutoCAD engineering software. Its unique and huge data set consists of plans, drawings, blueprints and blueprints that the company can use for a generative artificial intelligence program that will increase the productivity and creativity of engineers and architects.

We also own Cloudflare NET,
+1.88%
because its network of edge servers will be used to power the inferential part of artificial intelligence around the world more securely and with much lower latency than alternatives. We also own Intel INTC,
+2.13%
and TSM for Taiwan semiconductor manufacturing,
+5.17%,
as we believe these companies will be the only companies on the planet with foundries capable of building the advanced chips needed to power artificial intelligence.

That said, most AI, software, and semiconductor stocks are a crowded market right now; there will probably be the possibility to buy at lower prices in the next year. One of the keys to long-term investing is not to overpay for stocks when they get inflated valuations. Remember that during the dot-com bubble, large companies like Microsoft and Intel reached truly astronomical stock market valuations, and it took many years for investors to earn a return if they bought at the 2000 highs.

We will continue to hold our big long-term winners, including Nvidia, Alphabet, Meta Platforms, Taiwan Semiconductor, and Tesla, as these companies are at the forefront of artificial intelligence. We are excited about the prospects for Autodesk, Cloudfare and Intel. And we will also be on the lookout for the next Nvidia, Alphabet, Meta Platforms or Tesla.

Disclosure: Willard and/or the 10,000 Days hedge fund are net long META, GOOG, AMZN, TSLA, INTC, TSM, ADSK, NET, NVDA and net short AI. Positions may change at any time and without notice.

Moreover: Attention, Super Micro: Dell is also establishing itself as an AI play

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