Tom Yeung here with this week’s Sunday Digest… where each week I bring you the best stories and investment ideas from the analysts across InvestorPlace.
Over the past several weeks, you’ve heard me talk a lot about artificial general intelligence (AGI). That’s the moment when AI becomes smarter than humans in a broad variety of tasks.
And frankly, two things scare me about this moment.
- What comes after? (No one knows) We don’t have much of a framework to understand what AGI will look like. Would it have sentience? Free will? The ability to make exponentially better versions of itself in the blink of an eye? Or will it simply look like better versions of today’s large language models without the motivations or “soul” of living things. Even top AI experts can’t agree.
- How fast will this happen? (2-5 years) Some like Elon Musk believe AGI could happen within two years – though it’s important to note he’s often over-optimistic. But even cautious experts believe we could see AGI by 2029 if we extrapolate from current improvements in computing speeds
That gives us precious little time to prepare. Five years happens in the blink of an eye. (It’s already been that long since Theresa May resigned as the U.K. prime minister and Lil Nas X’s “Old Town Road” was topping the Billboard charts!) And that means it’s more crucial than ever to get started. Not tomorrow… but today.
In a special presentation earlier this week, Eric Fry laid out his vision for The Road to AGI. In it, he explained the fast-approaching world of AGI and gave viewers the opportunity to capitalize on the massive changes ahead. Over 15,000 people signed up, and at least 5,000 of them viewed it the first day.
Fortunately, the replay of the event is still available to InvestorPlace readers for a limited time. To access the video, click here.
In the meantime, our analysts across InvestorPlace.com have also been busy identifying high-potential stocks to buy before AGI arrives. Though we might not know what happens after AGI, there are plenty of opportunities to get ahead before that moment.
AI Is Booming… but Quality Matters
In an update this week, senior analyst Luke Lango highlights how the AI Boom is yielding real and significant financial benefits across the global economy. Large language models are helping create dynamic ads… restaurants are using AI to analyze payments data to improve service… and the best providers of these tools are surging ahead.
He highlights Keysight Technologies Inc. (KEYS) as a firm that’s doing particularly well in capturing this new demand:
Just last night… electronic design firm Keysight Technologies (KEYS) said that businesses are re-architecting data centers for AI, leading data center operators to upgrade to high data-rate networking products in bulk – massively boosting Keysight’s business. On a conference call with analysts, the company’s CEO said that it’s becoming quite clear that AI will be a transformational technology.
The result is a company that’s seeing a rapid recovery in its business. A previously anticipated 9% decline in revenues this year (due to slower orders from communications and industrial clients) is now flipping back to growth. Management has now guided for $1.26 billion in Q3 sales – a 3% sequential growth rate – and analysts expect this figure to hit near double digits by 2027.
Essentially, Keysight offers the best-in-class communications testing equipment, which makes it a mainstay in 5G buildouts. The Santa Rosa, Calif.-based company typically earns a better than 20% return on capital invested (ROIC) in that historically cyclical market because it’s the only firm that serves the entire communications vertical from physical gear to application software.
Management has used this “moat” to expand in the wired communication segment as well, which gives Keysight significant exposure to the AI data center market. This pivot reduces cyclicality and provides a future pathway to growth. Analysts expect earnings to rise in the mid-teens thanks to Keysight’s scale.
By contrast, lower-quality AI firms often lack this type of moat, which leaves them vulnerable to dominant players. On Thursday, AI software maker Snowflake Inc. (SNOW) tumbled 14% after revealing a sales outlook that confirmed analyst fears that it is losing out to Microsoft Corp. (MSFT). SoundHound AI Inc. (SOUN), BigBear.ai Holdings Inc. (BBAI), and others face similar issues.
Meanwhile, Keysight remains a far safer bet on The Road to AGI thanks to its strong market position, essential portfolio services, and a business model that will only grow as AI takes a larger wallet share.
The Self-Driving Superstar
Lots of folks are now piling into Alphabet Inc. (GOOGL) for its potential in data centers. Never mind that 77% of its revenues comes from advertising on Google Search and YouTube… or that subscription, platform, and device revenues in 2023 eclipsed Google Cloud sales. Whenever Alphabet’s bosses talk about AI investments, no one can hear anything else. (Remember that GOOGL fell 4% on July 23 despite a significant earnings beat simply because investors were worried about its spending on AI.)
However, it turns out that data centers and cloud computing might not even be Google’s best bet on artificial intelligence…
In separate update, Luke notes that Alphabet-owned Waymo is making thrilling progress in autonomous vehicles, giving the search giant a surprising “option” value.
In just the past two months… Waymo has opened its ride-sharing service to all riders in San Francisco, scaled up to 50,000 rides per week, scored a $5 billion additional investment from Alphabet, announced expansion of its car routes onto highways, and revealed a newer, cheaper, sleeker, and comfier vehicle design.
Big things are happening at Waymo.
It’s hard to overstate how enormous this market could become. Consulting firm McKinsey believes self-driving vehicles could generate $300 billion to $400 billion in revenue by 2035, making it comparable in size to today’s digital advertising market. The rise of AGI could make this even more significant, since the McKinsey study only considered current Level 1 to 4 autonomous driving technologies, as defined by the Society of Automotive Engineers. A car owner could, for instance, lease out their self-driving car during the day for additional income. And restaurants would have no need for meal delivery companies with self-driving cars. (Perhaps food trucks could navigate them straight to your door?)
Of course, Waymo still has plenty of bugs to work out. A recent viral video showed its cars honking at each other in a parking-lot stalemate. But Alphabet’s subsidiary is well ahead of most of the competition in testing. And perhaps most tantalizingly, markets are currently assigning zero value to this high-potential bet. Investors might want to buy Alphabet for its AI data center growth… but they should consider staying for the self-driving moonshot.
The King of the AI Hill
Finally, Predictive Alpha – from our corporate partners at TradeSmith – highlights Nvidia Corp. (NVDA) this week as a company to buy on the recovery. The quantitative system predicts shares could rise 9% to $137 over the next 30 days, meaning that its recent surge isn’t quite over.
This reflects Louis Navellier’s InvestorPlace report earlier this month on the GPU maker, where he urged investors to buy the dip on Nvidia on peaking pessimism.
Pessimism for Nvidia stock remains at elevated levels. Fear and uncertainty continue to weigh on the AI chip leader’s shares… There are still lingering concerns that Big Tech’s massive investment in building out its AI infrastructure will soon slow down, bringing Nvidia’s revenue and earnings growth winning streak to a screeching halt.
In our collective experience, these moments of gloom make for particularly good entry points. Nvidia trades for just 31 times 2026 earnings, despite being the dominant GPU maker.
Plus, it’s important to note that most analysts tend to focus on Nvidia’s current businesses, rather than potential new avenues for growth. (By contrast, companies like Tesla Inc. [TSLA] are consistently valued on businesses that don’t yet exist.) Nvidia will likely see increasing demand from endpoint AI devices in everything from autonomous cars to surgical robots that must run AI without connections to data centers.
And as we approach AGI, it’s almost certain that new AI technologies like human-computer interfaces and nanobots will eventually emerge. These will all require the GPU-style processors that Nvidia currently makes.
In addition, the company’s proprietary CUDA software is creating a lasting “moat” in the industry, because every piece of software optimized for CUDA must be rewritten for competing devices. You can read more here on why I believe Nvidia will be worth a split-adjusted $160 by 2027.
That means pessimism is still driving a wedge between Nvidia’s fundamental value and its stock price. Markets are pricing Nvidia like a monopolistic but stagnant player, providing data centers and gamers with chips designed for matrix multiplication. But the rapid development of AI means Nvidia will likely end up being far more.
The Road to AGI
That said, the three companies I’ve highlighted today are arguably “safe” ways to play the Road to AGI. They all have existing wide-moat businesses, and their AI optionality is built on these money-spinning businesses.
In other words, they’re lower risk, but also slightly lower return.
But what if you want to get ahead on the Road to AGI?
Here’s where Eric Fry can help. In his latest presentation, he talks about the potential opportunities of AI… as well as the areas to avoid. He also shows us how to get our hands on several incredible opportunities, including one $3 stock we’ve picked together that could potentially see revenues rise 100-fold as the Road to AGI unfolds.
Check out Eric’s The Road to AGI Summit now — and make sure you’re not left behind.
Finally, I’ll be taking off next Sunday due to some Labor Day-related travel – but I’ll see you back here in two weeks.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace
The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.