Looking for the best S&P/ASX 200 Index (ASX: XJO) stocks to ride the artificial intelligence (AI) megatrend?
You're not alone!
The meteoric rise of generative AI stock Nvidia Corporation (NASDAQ: NVDA) has seen the US-listed company's market cap surge to US$2.3 trillion (AU$3.4 trillion).
That's more than Australia's annual GDP!
And it's drawn plenty of investor interest.
So, which two ASX 200 stocks look best placed for revenue and profit growth from this booming market?
Read on.
Two ASX 200 stocks for the AI revolution
The massive recent growth and even more massive future growth potential that AI presents for ASX 200 stocks hasn't been lost on Jun Bei Liu, a lead portfolio manager at Tribeca Investment Partners.
"We believe AI will be a mega investment trend that permeates every part of human life via business and household adoption," Liu says (courtesy of The Australian Financial Review).
But with stocks like Nvidia already up 197% in 12 months, could the sector be getting a bit frothy? And might that not impact ASX 200 stocks connected to the industry?
Not according to Liu.
"We strongly disagree with the notion that the performance and weight of AI-related tech stocks is a signal that we are in a bubble," she says.
Liu explains that demand for Nvidia's generative AI chips is "projected to double again in the next six years".
Importantly for Aussie investors, she says this will only increase the already booming demand for data storage and data centres. Already growing at double-digit rates, data centre capacity requirements are forecast to grow at 15% annually through to 2030.
She adds that, "Australia, which is already a top five global data centre hub, is forecast to grow from 1 [gigawatt] GW today to more than 2.5GW during this time."
As for which ASX 200 stocks are best positioned to make hay from this mega investment trend, Liu notes that there are numerous different opportunities to tap into this "broad investment theme".
She says the opportunities for AI "are in chips – used to power the process; storage – needed to house the enormous amounts of data processed; energy – used to power the infrastructure; and software – used to execute computer processes".
Drilling down to the domestic market, Liu says (courtesy of The AFR):
For Australian investors who wish to play this theme on the ASX, storage is probably the easiest and most relevant given we don't manufacture chips, energy tends to be localised and software developers and creators tend to be global…
Key components of a successful data centre include access to the grid, security of energy, connectivity and proximity to clients. With limited access to usable land that provides such access and long-term contracts for energy security, it is the incumbent data centre players that will continue to drive future growth.
Which brings us to the two "best" ASX 200 stocks to buy now for the AI revolution: real estate investment trust (REIT) Goodman Group (ASX: GMG) and data centre operator NextDc Ltd (ASX: NXT).
According to Liu:
The best listed players that we believe directly participate in this megatrend here in Australia are NextDc and Goodman Group – both have a strong pipeline of future contracted development…
In the case of Goodman Group, not only does it directly tap into the global data centre trend, it also has the opportunity to change much of its future data centre pipeline into a direct operating model where returns can be multiple folds of current development earnings.
The Goodman share price is up 69% over the past 12 months.
ASX 200 stock NextDc's shares are up 50% over this same period.
