Last year will probably take its place among the worst stock market declines in Wall Street history. Each of the major market indexes took it on the chin and plunged into bear market territory, resulting in the most dismal market performance since 2008.
This year, however, has kicked off in fine fashion. Those same market indexes that delivered dismal performances last year are making up lost ground in 2023, each rebounding more than 20% from their respective bottoms, signaling the start of a new bull market — at least by that measure.
So, what’s fueling this banner year? Simply put: recent advances in the field of artificial intelligence (AI). Wall Street and Main Street alike are captivated by the potentially far-reaching applications of generative AI and next-generation chatbots, including ChatGPT.
Some of the world’s most accomplished investors have climbed aboard the AI train, loading up on shares of stocks well positioned to profit from the AI revolution. Here’s a look at what one of them has to say.
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Ken Fisher
Ken Fisher is a well-known name in investment circles. The billionaire philanthropist, author, financial columnist, and money manager rose to prominence after founding Fisher Investments in 1979, turning a $250 million investment into $211 billion in assets under management.
Fisher’s firm caters to both high-net-worth individuals and institutional investors. He also penned the “Portfolio Strategy” column in Forbes from 1984 through 2016, making him the longest continuously running columnist in the publication’s history. So when Fisher talks, investors listen.
The rapid rise of so many AI-related stocks this year has many investors wondering if AI is already in a bubble. Fisher downplays the idea of a bubble and acknowledges that while opportunities exist, he suggests the rise of technology stocks this year is “mostly about quality growth and rebounding from its outsize 2022 bear market slide.”
“It is not tiny start-ups in Silicon Valley that are driving AI,” Fisher adds. “It is the big guys in chips, software, data analytics, search, and more with pole position.” He adds a caveat, however: “Some AI exposure may be beneficial … intelligent investing means seeking high-quality growth. If AI partly drives that growth, OK.”
A history of quality growth
A quick look at Fisher’s widely diversified holdings reveals that two AI stocks dominate his portfolio.
Fisher Asset Management holds 52.35 million shares of Apple (AAPL 0.25%) stock, valued at roughly $10 billion and representing more than 5% of his portfolio. And it’s easy to see why the iPhone maker is Fisher’s No. 1 holding.
When it comes to consistent, quality growth, it’s hard to beat Apple. Over the past decade, the company has grown its revenue by 153%, while its earnings per share have surged 415%. This financial performance has sent its stock up more than 1,170%, marking the first company to surpass a $3 trillion market cap and making it the most valuable public company in the world.
CEO Tim Cook has been largely mum about the potential for AI, but Apple has a long history of integrating AI into every aspect of its products. Furthermore, the recent debut of its Vision Pro mixed-reality headset is likely the first step in a “generative AI-driven app ecosystem,” according to Wedbush analyst Dan Ives. The growth will be driven by its installed base of over 2 billion active devices, including over 1 billion iPhones.
Microsoft (MSFT 0.92%) is Fisher’s second-largest holding, with 24.46 million shares valued at more than $8.2 billion, accounting for more than 4% of his portfolio.
Like Apple, Microsoft has a history of quality growth going back years. Over the past 10 years, the company has grown its revenue by 185%, while its earnings per share have surged 295%. This financial performance sent its stock up more than 894%, pushing its market cap to $2.5 trillion, second behind just Apple.
Microsoft has made no secrets about its AI aspirations, integrating ChatGPT and generative AI into its Bing search engine, as well as ambitious plans to make the technology widely available to customers of its Azure cloud.
So what does this mean for investors?
Investors might be tempted to take a pass on Apple and Microsoft, since they’re already the two largest companies in the world when measured by market cap. While that’s understandable, consider this: Ives believes both companies have further to go. He suggests Apple could be worth $4 trillion by 2025, and Microsoft could join Apple in the $3 trillion club by early next year.
Market prognosticators have yet to determine how much productivity could ultimately be boosted by AI, so estimates about the market vary wildly. Two of the more conservative estimates come courtesy of Morgan Stanley and Goldman Sachs, which believe the technology could be worth $6 trillion and $7 trillion, respectively, by the end of the decade.
Given the potentially vast implications and use cases for AI, I would submit that companies that successfully harness the technology could grow much further from here. And investors won’t go wrong focusing on quality growth.
This content was originally published here.
