It’s not too late to buy AI stocks: Mirae Asset Securities analyst

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There is still time to buy artificial intelligence (AI) stocks even as prices have already risen considerably due to their future growth potential, according to Mirae Asset Securities senior analyst Lee Sang-won.

The analyst shared his thoughts at the 2023 Tech Concert with Maeil Business Newspaper held in Seongnam on Tuesday, advising investors to consider investing in U.S. big tech companies, especially those involved in AI.

“While stocks related to AI, such as NVIDIA and Microsoft, have already seen significant price gains, and their valuations may seem high in the short term, they are likely to become more affordable as their earnings improve in the future. Given the AI industry’s explosive growth potential, it’s not too late to invest in AI-related stocks,” Lee said.

He also recommended a strategy of reducing domestic stock investments in the second half of 2023 while concurrently investing in U.S. big tech stocks and bonds, which could yield an annual return of 6-8 percent.

“The AI theme has only just begun this year, and Apple’s smartphones are expected to have a significant impact moving forward, similar to what Tesla did to the electric vehicle market,” Lee added.

“In fact, AMD CEO Lisa Su projected in the company’s second-quarter earnings report that demand for AI-related semiconductors is expected to grow by 50 percent annually over the next three years.”

But with the AI industry still in its early stages, there is a need for significant infrastructure investment and Lee predicts steady growth in AI semiconductor revenue for data centers and similar applications over the next three years.

“Currently, NVIDIA’s price-to-earnings ratio (PER), a metric that indicates how many times a company’s stock price relates to its earnings per share, is 119, but the forward 12-month PER, considering earnings growth, drops to 30. Microsoft and Google also predict falls in their PERs from 33 and 29 respectively to 25 and 20.” Lee also suggested that a strategy focusing on relatively cheaper companies in the related sector could be effective. “Stock prices of relatively less well-known companies in the AI field such as Adobe, Salesforce, ServiceNow, and Trade Desk are also expected to rise.”

Among AI-related stocks, Lee expects NVIDIA will see exceptional growth over the next two years.

“NVIDIA’s second-quarter revenue related to data centers was $10 billion, eight times more than AMD’s $1.3 billion, and this gap is expected to widen in the third quarter.”

Additionally, NVIDIA’s AI software platform, CUDA, which has been used by AI developers for over a decade, holds a dominant position in the AI market with a share of over 90 percent. This makes it challenging for other AI companies to move away from NVIDIA’s ecosystem, further benefiting the company’s prospects in the sector.