The AI “Pick and Shovel” Play With Money-Doubling Potential
Artificial Intelligence (AI) has created an incredible opportunity for investors. Just like at the dawn of the Internet, ordinary people now have the chance to get in on the ground floor… with innovative companies at the forefront of developing new and potentially life-changing technology.
However, just like during those early dotcom days, investing indiscriminately in these companies comes with a lot of risk.
The hype has grown exponentially since OpenAI introduced ChatGPT in November 2022.
According to Gartner, “CEOs mentioning AI as one of their top two technology priorities jumped from 4% in 2023 to 24% in 2024.”
Investors have piled in on the trend.
Everyone knows about Nvidia (Nasdaq: NVDA)’s near-200% rise from ChatGPT’s release through the end of 2023…
It’s a rise that’s continued into 2024, with shares topping $1,150 in June.
But it isn’t just Nvidia that has seen tremendous inflows. More than a year of AI hype has pushed up shares of many of the companies leading this tech revolution.
It’s also inflated the shares of many “AI companies” that don’t show much promise at all.
We’ve seen many nefarious characters try to jump onto the AI bandwagon by changing their name or business to focus on AI without any real business acumen or knowledge to back it up.
Again, it’s similar to what we saw during the dotcom era. Not all companies are created equal.
But with so much hype, even the strong have become, arguably, overvalued.
It all poses a real risk to everyday investors trying to position themselves so they can reap the rewards from the AI gold rush.
That’s precisely why we like a pick-and-shovel AI play like the one detailed below.
What’s a “Pick-and-Shovel” AI Play?
Pick-and-shovel investing is a clever way to play a trend without worrying about the – often overvalued – big names hogging media attention.
The strategy gets its name from the California gold rush of the mid-1800s.
The way it works is simple. Investors buy shares of companies that sell the tools or services used to produce a product.
During the California Gold Rush, the big money wasn’t made by investing in claims and hoping to find gold. It was made by investing in the companies providing prospectors with the tools they needed (think pick axes and Levi’s jeans) to strike it rich with a gold discovery.
Pick-and-shovel investing is a time-tested strategy. It’s more than 150 years old… and it still works.
Yes, even in the age of artificial intelligence.
It’s a great way to invest in AI without sifting through rows and rows of overvalued and potentially fraudulent companies.
Which is precisely why Manward’s Chief Investment Strategist, Shah Gilani, recently pointed us to this pick-and-shovel play on the AI story…
An Ideal Pick-and-Shovel AI Play for 2024
Micron Technology Inc. (Nasdaq: MU) is a Boise, Idaho-based designer, developer, and manufacturer of memory and storage products worldwide.
While it may not have the same name recognition as others in the AI space, Micron is well-positioned to capitalize on the sector’s explosive growth.
Especially in light of the recent news that Micron began mass production of its HBM3E (High-Bandwidth Memory 3E) semiconductors for use in Nvidia’s state-of-the-art AI chips.
Nvidia will be using Micron’s HBM3E chip in its next-generation H200 graphic processing units.
That’s huge!
As AI is widely adopted across industries, demand for Nvidia’s H200 GPU should be robust to say the least. It should translate into a major boost in revenue for Micron.
Which is why now is the perfect time to get in.
Because even though Micron’s numbers don’t look great, that’s clearly very likely to change.
The company recently generated $16.18 billion over the trailing 12 months. And it’s expected to post a $0.39 per share loss in 2024.
But by the end of 2025… analysts expect the company to earn $6.50 per share.
Assuming Micron achieves this level of profitability – or even comes close to it – that will represent a significant turnaround. All of a sudden, this lesser-known pick-and-shovel AI play should capture the attention of Wall Street…
And, in turn, that should drive share prices higher.
Additionally, consider this…
The current P/E ratio of iShares Semiconductor ETF (Nasdaq: SOXX) is currently 33.4X. If Micron earns $6.50 and we apply the SOXX P/E ratio of 33.4, then Micron would be trading at $217.10.
That’s 142.5% higher than where it’s trading as we write this.
For that reason, along with the others outlined above, we think Micron is well worth your consideration right now. It’s packed with potential and, going forward, should ride the same tailwinds that have powered Nvidia’s rapid rise.