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Two stocks to take advantage of the AI boom, beyond the obvious tech names

05 August 2024

Following the tech sell-off, Killik suggests stock picks in healthcare and industrials for a less volatile play on AI.

By Patrick Sanders,

Reporter, Trustnet

While artificial intelligence (AI) has driven equity market gains this year, investors should not overlook the wider opportunities that AI will unleash, according to Mark Nelson, senior equity analyst at Killik & Co.

Until the sell-off in recent weeks, global equity markets performed well this year, with the MSCI world index among others seeing double-digit returns.

However, this performance has been driven by a relatively narrow set of stocks such as Nvidia, with most sectors underperforming the index, Nelson pointed out.

Rather than allowing current trends to dictate investment strategy, Nelson outlined two stock picks in the industrial and healthcare sectors that he believes can position investors for long-term returns.

First up is Schneider Electric, which stands to benefit from AI supply chains and the expansion in data centres.

The company’s energy management department, responsible for 79% of its sales in 2023, has seen strong growth due to the surge in AI, as well as demand for more flexible networks.

This has made Schneider one of the leading electrical franchises globally, with attractive returns for investors seeking a “backdoor to the boom”.

Secondly, Nelson recommended considering demographic changes when looking for long-term growth, most notably in terms of healthcare.

The global population aged over 60 is projected to more than double to around 2.1 billion by 2050, according to the United Nations, and as a result, healthcare expenditure is expected to rise dramatically. Businesses that can improve outcomes for patients and payers should also prove rewarding for shareholders.

Nelson identified Intuitive Surgical, which produces robots to assist and streamline soft-tissue surgery, as an example. “Despite strong growth from the business, the penetration of its machines is low and we believe that the company has an almost uniquely strong competitive position, with its 20-year head start on competitors giving it a very large installed base, and close to 100% market share,” Nelson said.

While AI will continue to be a core theme in equity markets, Nelson criticised the market’s current “lack of breadth”, which investors can counteract by pursuing these overlooked investment opportunities.

 

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