Are AI shares worth buying into?
Is the recent hype around artificial intelligence worth a long-term view? Or will it go the way of 3D printing and emu farms?
Wilson Asset Management portfolio manager Tobias Yao's team certainly reckons AI is already making a tangible difference in the way businesses operate.
"We are taking a positive view to AI-exposed companies given our observations that there is real evidence that AI initiatives are driving efficiency gains in different industries," Yao said in a memo to clients.
"The positive narratives coming out of the world's leading technology companies suggest that investment into this space should continue over the next few years, and we want to be positioned accordingly."
So which S&P/ASX 200 Index (ASX: XJO) stocks is Yao backing in the AI race?
Here are two that he named:
'More AI-related contracts to come'
Yao has been "bullish" on data centre manager NextDC Ltd (ASX: NXT) for a while now.
He revealed that his team had been buying up the shares since February when it was hovering around the $10 mark.
The stock closed Friday at $12.51, but Yao still considers it a long-term buy.
"After speaking to many industry experts, the catalyst we identified was that large global technology companies are increasingly looking to put servers into partner data centres to complement their own data centres," he said.
"This played out over the last seven months with NextDC winning two significant contracts. We believe this trend will continue with more AI-related contracts to come over the next few years."
It seems many of Yao's peers agree with him on this.
According to CMC Markets, a stunning 15 out of 17 analysts believe NextDC shares are a buy right now.
'Well positioned to take advantage'
The other ASX 200 stock set to benefit from the AI revolution is virtual networking provider Megaport Ltd (ASX: MP1).
Yao's team started accumulating the stock in April when it was around $5.
They have done pretty well out of it already, with Megaport closing Friday on $10.98.
At the time Wilson analysts started buying, the business was in turmoil with the loss of a chief executive. Founder and chair Bevan Slattery sat in the CEO seat temporarily.
"[Slattery] introduced financial discipline via right-sizing the cost base."
Then he appointed Michael Reid as the new chief executive, who Yao called "a seasoned technology executive with an impeccable track record".
"With a revitalised management team, we believe Megaport is well positioned to take advantage of the demand for their services over the next few years."