The talk at the moment isn't about whether artificial intelligence stocks are in a bubble; it's more about when that bubble will burst.
Large language models like OpenAI's ChatGPT and Anthropic's Claude are increasingly being used by businesses, and the promises about efficiency gains are coming thick and fast.
And on the listed company front, it seems every second press release is touting the ability of AI to revolutionise how things are done.
Infrastructure the key
In the midst of all of this hype, it can be hard to sort the wheat from the chaff, but Wilsons Advisory has applied a tried-and-true method to finding value.
In a recent report about the AGM season so far, they call out Goodman Group (ASX: GMG) as their preferred "picks and shovels" pick in the AI space.
The picks and shovels strategy dates back to the gold rushes of the past, the idea being that while only a few prospectors might strike gold, the people selling them their picks and shovels will always prosper.
Wilsons Advisory said in a recent research note to clients that the $62.4 billion Goodman, which has been investing heavily in rolling out data centres, recently delivered a positive first quarter update, "albeit slightly below elevated investor expectations".
As Wilsons said:
Overall, Goodman's first quarter update highlights disciplined execution of its data centre pipeline. With the US reporting season showing robust hyperscaler capex amidst AI investment cycles, we view Goodman as a key ASX beneficiary of the AI thematic, given its pipeline is focused on low-latency metro locations that are central to serving cloud and related AI requirements.
Wilsons said following a pullback of about 15% since mid-August, "Goodman offers clear valuation support at a forward price to earnings ratio of 22.5 times – in line with its 10-year average and at a circa-10% discount to its five-year average – despite its growing exposure to the AI tailwinds, which should support low-teens earnings per share growth over the medium to long term''.
Wilsons has also made a pick among what it calls "product enhancers", where it likes the look of TechnologyOne Ltd (ASX: TNE), which, it said, recently unveiled its first agentic AI solution called Plus.
Wilsons said this, "can be thought of as a virtual assistant for the company's local council, state government department and higher education customer base''.
The addition of 'Plus' to TechnologyOne's product suite has significantly extended (its) growth runway and underpinned its ability to sustain more than 115% net revenue retention. This is a dynamic not yet reflected in consensus estimates, creating upgrade risk over the medium-term.
Wilsons said despite the company trading at a forward price-to-earnings (P/E) ratio of about 70 times, "we retain conviction in the stock given the improving outlook and earnings quality driven by Plus, as well as our confidence in management's ability to deliver against consensus expectations''.
