Hugh Gimber, global market strategist at J.P. Morgan Asset Management, joined CNBC’s Squawk Box Europe to discuss the sectors poised to benefit from the artificial intelligence boom as the dominance of the “Magnificent 7” fades.
Gimber anticipates a broadening across sectors in 2025, stating that the current gap between Mag7 and the rest doesn’t make sense. This is because it is unrealistic to have a handful of stocks priced as if they are going to unlock new productivity across the economy alone, while other sectors don’t witness any major earnings upgrades.
He further stated that he believes the story for next year is to see some of those earnings benefits coming through in sectors such as financials, manufacturing, and healthcare, particularly, as these sectors start to reap the rewards of the capital expenditures already initiated by tech giants.
As the gap between mega caps and the rest starts to close, it is going to set the stage for a healthy market and more opportunity under the surface. As such, attention turns to how quickly certain stocks respond and what unfolds as the market acknowledges the increasing number of AI-related opportunities heading into the year.
For instance, some utility names could emerge as critical players, and healthcare stands out as a particularly strong candidate for growth. There are going to be plenty of examples that are showing up over the next few quarters, and some of the biggest gains might come from names that aren’t yet on the radar.
As of today, artificial intelligence stocks are still the hottest in the market, even though the Magnificent Seven has delivered mixed results lately due to concerns over escalating expenditures and valuation pressures.
In a notable shift, Barron’s reports that investor sentiment may be shifting from AI infrastructure providers, such as those focusing on hardware and cloud-based resources, toward software-centric players. These software companies are now being recognized for their potential to deliver higher margins, scalability, and faster adoption cycles as AI applications permeate industries ranging from healthcare to finance and beyond.
Moreover, the upcoming inflation report, seen as a key to future interest rates, is also causing investor skepticism. While AI stocks are poised for long-term growth as the technology continues to revolutionize multiple sectors, short-term fluctuations remain tied to macroeconomic concerns.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
25 Most Innovative Companies in the World in 2023
A symbolic representation of innovation, with a programmer working on a laptop in front of robotic arms and low code development environment.
UiPath Inc. (NYSE:PATH) is a well-known software as a service (SaaS) enterprise that develops AI-powered automation platforms to help businesses transform their operations. On December 6, Mizuho Securities analyst Siti Panigrahi reiterated their neutral stance on PATH stock, giving a “Hold” rating. One factor Panigrahi credits the hold rating to is UiPath’s potential to exceed revenue expectations in the third fiscal quarter amid a challenging macroeconomic environment. Even though the company has announced that it anticipates stabilization in its annual recurring revenue and an accelerated growth rate in its free cash flow, potential disruptions from artificial intelligence advancements are likely to impact demand for its robotic processes.
Moreover, investor apprehensions still exist about the AI disruption risk. This is despite the company achieving major achievements in product innovation and strategic partnerships, such as the SAP SolEx partnership. Ongoing investments, such as the traction of its Agent Builder, a tool for building, evaluating, and publishing AI agents, demonstrate potential. Nevertheless, the concerns about AI disruptions still exist. The company faces concerns that AI advancements could reduce demand for traditional RPA (robotic process automation) by offering more sophisticated automation solutions. Thus, the hold rating is a reflection of both positive and negative aspects.
Overall, PATH ranks 8th on our list of top 10 AI stocks on latest news and analyst ratings. While we acknowledge the potential of PATH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PATH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
