We recently compiled Goldman Sachs’ list of 35 AI superstars. In this article, we’ll take a look at how Lam Research Corporation (NASDAQ:LRCX) stands compared to other AI superstars, according to Goldman Sachs.
U.S. technology stocks have rallied sharply this year, largely due to growing excitement around generative artificial intelligence (AI). But a study by investment firm Goldman Sachs says the rise is not indicative of a financial bubble like in the past. The performance of these companies is expected to continue delivering solid returns to investors, driven by the rise of smaller technology companies outside of the Grand Seven and AI superstars in non-tech sectors. However, Peter Oppenheimer, the bank’s head of global equity strategy and head of European macro research, advised investors to diversify their portfolios to manage risk.
Tech stocks have dominated since 2010, accounting for 32% of global stock returns and 40% of U.S. stock returns, but these returns are driven by strong financial fundamentals, not speculative bubbles. Earnings per share in the tech sector are up 400% from their pre-financial crisis peak in 2008, far outpacing other sectors that have only grown by 25% combined. The main driving force behind the huge revenues in recent years has been a small group of hyperscale companies, especially software and cloud computing companies. These companies leverage vast resources and high profitability to dominate the market, and optimism about AI has fueled their recent performance.
To learn more about these developments, visit BlackRock’s 30 Most Important AI Stocks and Beyond the Tech Giants: 35 Non-Technology AI Opportunities.
This has led to valuation increases being primarily concentrated in a narrow group of market leaders. Peter Oppenheimer observes that this pattern reflects historical trends in technological innovation. From the construction of canals in the 18th century to the widespread use of the telephone, new technologies often attract large amounts of capital and competition. Although this does not always result in a financial bubble, there are usually periods when prices fall as competition increases, eventually leading to market consolidation. Over time, only a few large companies remain dominant, and growth shifts to secondary innovations that build on the original technology. The AI era is unique in that the leading AI companies were also at the forefront of previous waves of technology, particularly in software and cloud services.
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Due to its scale and profitability, it is well positioned to absorb the high costs of AI investments. But Oppenheimer points out that new competitors are emerging. The number of AI patents has jumped from about 8,000 just four years ago to more than 60,000 in 2022, suggesting that AI is following the typical pattern of massive capital growth and competition. are. Oppenheimer also points out that the companies that pioneer a new technology may not derive the most value from that technology in the long run. For example, during the Internet boom, telecommunications companies received significant investment, but it was companies like social media and ride-sharing that leveraged Internet infrastructure to achieve the greatest success. Similarly, as AI evolves, new companies may emerge as the next wave of tech superstars, reshaping industries beyond the current giants.
Next, take a look at our list of 35 AI superstars that major banks are eyeing. We compiled this list based on bank reports on the AI industry. These stocks are also popular among elite hedge funds, and hedge fund sentiment is a key indicator that Insider Monkey pays close attention to.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 points (Learn more here Please take a look).
A technician operates an automatic semiconductor processing machine with laser precision.
Lam Research Corporation (NASDAQ:LRCX)
Number of hedge fund holders: 84 people
Lam Research Corporation (NASDAQ:LRCX) sells semiconductor processing equipment. The company is the world’s third largest supplier of wafer fabrication equipment. The company focuses on the deposition and etch submarkets within the semi-space. These require building layers on top of the semiconductor and then selectively removing patterns from each layer. It boasts the top share in the latter and second place in the former. The entire business of chip manufacturers is exposed to memory chip manufacturers for DRAM and NAND chips. Lam’s top customers include the world’s largest chip manufacturers such as TSM, Samsung, Intel, and Micron.
Lam Research Corporation (NASDAQ:LRCX)’s fundamentals remain attractive. The company posted revenue growth of 20.71% in the fourth fiscal quarter. This reflects a significant increase in sales compared to its peers in the IT sector. It also has an excellent net profit margin of nearly 27%, indicating high profitability and effective cost management. The return on equity has been hovering around 12.3%, which shows that the company is making efficient use of its equity capital.
According to Goldman Sachs, LRCX ranks 16th overall on the list of AI superstars. While we recognize LRCX’s potential as an investment, we believe some AI stocks have a better chance of delivering higher returns and in shorter time periods. If you’re looking for AI stocks with more promise than LRCX, but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has ‘become a wasteland.’
Disclosure: None. This article was originally published on Insider Monkey.
