Wall Street has been fixated on artificial intelligence for more than a year, with investor enthusiasm lifting tech stocks and chipmakers. But attention is increasingly turning to another group of companies that benefit from the AI wave: companies focused on industries. The club has two of these in our portfolio. Both Eaton and DuPont are unconventional AI plays, as the data center market grows to meet the demands of the generative AI boom. Eaton has electrical products used in new and retrofitted data centers, including servers that provide the extreme computing power required for AI applications. DuPont’s semiconductor business stands to benefit as orders for AI server chips increase. Top industry players like Jensen Huang, CEO of Nvidia’s holding club, have said the frenzy isn’t going away anytime soon — predicting a surge in spending in data centers, as older equipment is replaced with AI-enabled products. has been done and new facilities have been completely constructed. “Generative AI has ushered in a new era of investment to build the next $1 trillion infrastructure of AI generation factories,” Huang, the club’s namesake founder and leading AI chipmaker, said in February. “We believe these two trends will double the world’s data center infrastructure install base over the next five years and represent an annual market opportunity in the hundreds of billions.” So, what’s in it for our industry-focused club stock? The Wells Fargo Investment Institute last month called rising data center demand a positive “trickle-down effect” on the industrial sector. “We all talk about artificial intelligence, and almost immediately everyone’s attention turns to them. [graphic processing unit] manufacturers or people who are building high-end computers that will require a lot of computing,” Sameer Samana, a senior global market strategist at WFII, told CNBC. “But what’s really interesting is that other and There are third effects. Big tech firms’ spending on data centers creates “significant downstream effects,” especially for industrial companies, WFII wrote. The biggest US cloud infrastructure companies — Amazon, Microsoft and Alphabet to name a few — are all taking part. Data center enhancements. Amazon Web Services is reportedly investing about $150 billion in data centers over the next 15 years to support AI efforts. Another recent media report said that Microsoft and its partner OpenAI are considering a massive data center project that could cost up to $100 billion. Jim Cramer also touched on this trend in his recent Sunday column. McKinsey analysts, meanwhile, predicted in January that U.S. data center power consumption will grow nearly 10 percent annually from 2023 to 2030 as more companies integrate AI. It goes to the heart of electronic components and power management giant Eaton. It is the most direct beneficiary of the data center investment in our portfolio. And its stock price reflects that — closing Friday at a new all-time high of $330.51 per share. Even with some recent weakness, the stock was still up nearly 30% for the year. ETN YTD Mountain Eaton (ETN) Year-to-Date Performance Data centers are one of Eaton’s largest end markets, accounting for approximately 14% of companywide sales last year. Eaton sells electrical power management solutions to these facilities to help them operate more efficiently and safely. Its products include specialized circuit breakers, power management software and various electrical components. The growth of data centers targeted for AI workloads, in particular, bodes well for Eaton. AI data centers require more power and power density than a more typical computing facility, which means they have a higher electrical content, the company said. During the company’s most recent quarterly earnings call in February, Eaton’s then-finance chief said the company’s two largest operating segments — Electrical Americas and Electrical Global — both benefited from the power of data centers. Management gave a bullish outlook for 2024 along with the numbers, predicting strong double-digit revenue growth for that end market. The club argues that as more data centers are built, customers will need more of Eaton’s offerings. In the long run, this will help increase sales across the company. “Most things for the data center are made by Eaton,” Jim Cramer said during Monday morning’s meeting. “It’s part of a broader turnaround in the grid that we’re talking about,” he said last week after Barclays upgraded the stock to its hold-equals rating from sell and its price target. said after increasing from $250 to $300 per share. Wall Street analysts have echoed the club’s sentiments. On Friday, RBC Capital Markets upgraded Eaton shares to a buy-equivalent rating from hold, describing the stock as “the best large-cap way to ride the current electrical supercycle.” RBC analysts argued that Eaton has “the best broad-based data center exposure” within its coverage, predicting that the industry name could potentially exceed its growth expectations. “We believe Eaton’s estimate is 10.8%, 5 years. [compound annual growth rate] Its data center and IT business could be conservative through 2028,” the analysts wrote. Overall, Eaton has been a huge win for us since we first invested late last year. Long-term, we’re excited about other megatrends unfolding, such as infrastructure spending and reindustrialization—efforts supported by the US government’s passage of more than $1 trillion in spending bills. . The club made our first purchase of Eaton shares at $226.79 on November 15, with the stock up nearly 40% since then. Eaton hit an all-time high on Friday. The club has a Buy-equivalent 1 rating on Eaton stock. and a price target of $330 per share. Growing demand in data centers — though less directly than Eaton’s. In particular, DuPont’s electronics and industrial segment, which accounts for about 44% of its sales. Within the division, DuPont has smaller businesses such as Semiconductor Technologies and Interconnect Solutions, which make materials used in the manufacturing process of chips, as well as other high-performance computing solutions. These include offerings used in advanced chip packaging and coatings. Building more data centers — and even retooling existing facilities for AI computing — means more demand for chip-laden servers, driving demand for semiconductor manufacturing and DuPont’s products used in the process. We heard this from the administration itself recently. During Barclays’ investor conference in February, CFO Lori Koch said DuPont’s exposure to data centers and AI would help boost the company’s electronics business. He believes that DuPont’s Semiconductor Technologies segment is at the beginning of a multi-year growth spurt. The company projects that industry-wide shipments of silicon wafers will grow between 6% and 7% in 2024, Koch said. That figure is about two to three percentage points behind.” During the Feb. 21 event, Koch said DuPont’s semiconductor segment accounted for about 700 percent of its $2 billion in data center-related sales. Earn million dollars. According to Koch, about $250 million is tied to AI. While those numbers may be “small,” Koch said it’s “growing at a pretty good clip for us.” DuPont’s company revenue in 2023 was $12.1 billion. The club is optimistic about any growth in DuPont’s electronics and industrial business as the stock’s turnaround was a major reason we opened our stock at $78.41 a share in August. However, weakness in China and inventory destocking have weighed on the firm – a disappointing fourth-quarter earnings announcement earlier this year sent the stock lower and led us to lower our price target to $78 per share. forced In February, when DuPont released its full quarterly results, management said the firm expects a broad-based recovery and sees stable demand for its semiconductor technologies and interconnect solutions businesses through 2024. It traded at around $77 on Tuesday. While that remains slightly below where the club started its position in August, multiple buys on weakness kept our cost basis at $74.71 per share. The club has 1 rating on the stock. (See here for a complete list of stocks in Jim Cramer’s Charitable Trust.) The Investing Club information above is subject to our terms and conditions and privacy policy, along with our disclaimer. No formal obligation or duty exists, or is created, by reason of your receipt of any information provided in connection with Investing Club. No specific results or profits are guaranteed.
Wall Street has been fixated on artificial intelligence for more than a year, with investor enthusiasm lifting tech stocks and chipmakers. But attention is increasingly turning to another group of companies that benefit from the AI wave: companies focused on industries. The club has two of these in our portfolio.
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