We recently compiled Goldman Sachs’ list of 35 AI superstars. In this article, we’ll take a look at how KLA Corporation (NASDAQ:KLAC) 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 to deliver solid returns to investors, boosted by the rise of smaller tech companies outside 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 resulted in 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.
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The inner workings of a semiconductor manufacturing facility, neon-colored machines buzzing with activity.
KLA Corporation (NASDAQ:KLAC)
Number of hedge fund holders: 55 people
KLA Corporation (NASDAQ:KLAC) sells process control and yield management solutions for the semiconductor industry. Citi recently lowered its price target from $960 to $900 and maintained its rating on the stock at “buy.” The advisory updates the view on the semiconductor equipment sector, noting that the equipment group is headed for a mid-cycle correction in the first half of 2025. The advisory told investors in a research note that while demand for server artificial intelligence remained strong, consumer demand across PCs, smartphones and automobiles appeared lackluster. Citi lowered its forecasts and lowered its price target by 10% accordingly.
Richard Wallace, CEO of KLA Corporation (NASDAQ:KLAC), said on the fourth quarter earnings call that long-term factors such as foundry logic, continued technology scale-up, and modest increases in capital intensity continue to support the company’s performance. He said it was advantageous for the company. . He also said that the memory market is expected to return to growth in 2025 due to technological developments in AI, high-bandwidth memory, and improved supply-demand balance.
According to Goldman Sachs, KLAC ranks 25th overall on the list of AI superstars. While we see KLAC’s potential as an investment, we believe some AI stocks have a better chance of delivering higher returns and in shorter time frames. If you’re looking for AI stocks with more promise than KLAC but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.
