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AI investment is about more than just GPUs. Power companies have also dominated, Bank of America says.
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The firm notes that Vertiv, which makes power and cooling equipment for data centers, has beaten Nvidia by 315% over the past year.
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The performance represents a broadening-out of the AI trade to include utility, industrial, and commodity companies.
Nvidia remains a kingpin trade amid the artificial intelligence frenzy, but investors too narrowly focused on GPU chips have missed out on an even more lucrative opportunity.
In a new note, Bank of America notes that stock gains for Vertiv — which makes power and cooling equipment for data center — have outpaced Nvidia returns by a whopping 315 percentage points over the past year. They’re starting the comparison on May 24, 2023, right after Nvidia’s first blowout quarter, which set off the entire AI boom in stocks.
To be exact, Vertiv has climbed 516% since the date, handily outpacing Nvidia’s 211% gain. The benchmark S&P 500 has risen a comparatively paltry 29% over the same period.
“Vertiv is the real AI darling,” BofA wrote in a client note.
BofA says Vertiv’s stellar performance is representative of the AI rally broadening out to include an increasing range of sectors. Much of that stems from the advanced chips that power AI on — such as the ones Nvidia produces — requiring significantly more electricity to operate. That offers upside to industrials, utilities, and commodities, according to the firm.
“GPUs need 2-2.5x more power than CPUs, and expected power usage for US data centers under construction is equivalent to more than 50% of the power currently used by US data centers,” Bank of America wrote on Monday. “Power used by AI applications is expected to grow at a 25-33% CAGR over the next few years.”
Others, such as “Big Short” investor Steve Eisman, have pointed out that the boost to power usage also makes these GPUs considerably hotter, putting pressure on firms such as Vertiv to improve cooling systems in data centers.
Eisman has long been a bull on US infrastructure. Aside from AI, he’s betting that green policy will boost these sectors as well.
As Nvidia gears up for its earnings season on Wednesday, expectations remain strong, Bank of America said. The company has also set its own bar high, judging from its last twelve months: it’s added $1.5 trillion in market cap and trailing earnings per share have rocketed 617%.
“But it’s not just about NVDA anymore,” the note said, adding: “Fundamentals are broadening out and so should the market: NVDA drove 37% of S&P earnings growth over the LTM (and 11% of return), but is expected to drive just 9% over the next 12 months.”
Previously, Goldman Sachs had similarly outlined broadening AI investment, characterizing Nvidia as the first of four phases. Eventually, utility investments will take over, at which point firms that can best integrate AI software start winning out.
Read the original article on Business Insider