Nvidia shares have soared following its latest impressive earnings report (albeit its most modest this year), but there's a lot more to the tech space than just the AI chip giant and its “Magnificent Seven” comrades.
Other tech stocks are doing extremely well and still have a long way to go. Dell Technologies is riding the artificial intelligence wave and is at an all-time high. The company, which reports earnings on May 30, is getting a boost from new enterprise servers powered by Nvidia Blackwell chips. It's not the “Hey, buy Dell!” Dell era anymore. But the stock remains affordable, trading at just 20 times forward earnings.
Semiconductor company Marvell Technology, which has a growing AI chip business, and Dow component Salesforce, which rolled out an Einstein-generated AI GPT for its cloud software customers, are also scheduled to report earnings the week of May 27.
None of these stocks are as flashy as Nvidia, but that's OK: In fact, Daniel Cain, a portfolio manager on Artisan Partners' U.S. value team, says “boring-but-great tech” stocks are better buys.
One example is analog-chip giant Texas Instruments. Cain likes the company because its semiconductors tend to last more than a decade, making them key components for cars, industrial equipment and more cyclical consumer electronics. He notes that Texas Instruments has been busy moving manufacturing to factories in Utah and Texas. This “shoring” could help the company avoid becoming a regulatory or political target.
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Cain holds Texas Instruments through his Artisan Value fund (ticker: ARTKX), which also holds shares of South Korean-listed memory chip and mobile device maker Samsung Electronics Co. and Dutch chip designer NXP Semiconductors.
Investors could also be looking for some software companies, especially if the broader market is shaken again by lingering concerns about inflation and questions about when the Federal Reserve will raise interest rates. Trivariate Research recently ran a screen to find tech stocks with low correlation to inflation trends and interest rates. Software stocks that topped the list included Autodesk, Atlassian, Nutanix and Procore Technologies.
The good news for tech investors is that growth is on the horizon beyond the big names in the S&P 500. Even excluding the Magnificent Seven, the remaining tech stocks in the S&P 500 are on track to grow earnings by more than 10% over the next four quarters, according to Alex Athanasiou, a portfolio manager at Glenmade Investment Management.
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Athanasiou acknowledges that tech stocks are more expensive than the overall market, but he says he is considering adding semiconductor stocks to his company's portfolio. Despite high valuations, he says the overall tech sector remains attractive because returns on equity are also well above the market average.
“Investors don't need to be bottom-hunting,” Athanasiou told Barron's. “People are desperate for growth, but they don't need to.”
You just need to know where to look.
Email: paul.lamonica@barrons.com
