Top broker Morgans says ASX shares investors can capitalise on the artificial intelligence (AI) megatrend in a number of different ways.
While the Australian share market doesn't have major AI services companies like Nvidia Corp, Microsoft Corp, and Alphabet Inc, it does have companies with good exposure to this investment theme.
Morgans Head of Research, Alexander Mees, reckons there are two distinct business areas to focus on if you want to buy ASX shares with AI exposure.
They are digital infrastructure and data networks.
In a new article, Mees explains his thinking and reveals Morgans' top two picks among ASX shares.
2 ASX shares with exposure to AI
Digital infrastructure: Nextdc Ltd (ASX: NXT)
Digital infrastructure companies power the data centres, cloud computing, and research activities that are essential to the digital ecosystem and the rise of AI, Mees says.
He reckons data centre operators will enjoy all the benefits of the AI growth story with less volatility.
He comments:
Data centres are facilities that store, process, and manage the vast amounts of data foundational to AI, ensuring secure and efficient data flow, backup, and recovery.
The largest operators in the world are Digital Realty Trust Inc and Equinix Inc.
Digital Realty recently reported a record sales quarter during which it sold double the data centre capacity of its previous high and about four times more capacity than it usually sells in a quarter.
This reinforces our view that the significant demand for cloud computing and AI-related digital infrastructure is going to unpin attractive returns and long-term growth.
Among ASX shares, Nextdc and Goodman Group (ASX: GMG) are the largest data centre operators.
Both companies have had a great run of share price growth over the past 12 months.
Nextdc shares are up 33% to $16.30 in early trading on Tuesday.
ASX property share Goodman Group is up 65% to $36.26 at the time of writing.
Morgans prefers Nextdc for AI exposure on the Australian share market.
Mees said:
Our preferred exposure is Nextdc. It has 17 operational data centres in Australia and nearly a dozen under construction or about to be built across Australasia and Asia.
Data networks: Megaport Ltd (ASX: MP1)
Mees explains that AI needs a combination of technical expertise, computing power, data centre space, and data.
An extremely large amount of data is needed to train an AI agent or LLM.
Once the training is complete the AI agent also needs to be given regular up-to-date data in order to remain relevant and useful.
This is where traditional data networks (such as telcos like Telstra Group Ltd (ASX: TLS), TPG Telecom Ltd (ASX: TPG), Superloop Ltd (ASX: SLC), and Megaport) come into play.
Mees said traditional telecommunications companies will benefit from the "astronomical" growth of data around AI. Morgans tips Megaport among ASX shares in the data network space.
… our preferred exposure is through the more specialised and capital-light Megaport.
Megaport is a global cloud connection network and the leading Network as a Service provider.
It operates the largest data centre connection business in the world, connecting to 850 data centres through a fully automated, on-demand telco network.
We think it is uniquely placed to help business move data globally and benefit from the growth of data related to both cloud computing and AI.
This ASX tech share has fallen 32% over the past 12 months to trade at $6.76 apiece on Tuesday.
