All quality, no fluff⦠[TradeSmith Daily]( A Picks-and-Shovel A.I. Play
By Lucas Downey, Contributing Editor, TradeSmith Daily A.I. excitement is everywhere you look… And Iâm not just talking about ChatGPT. Analysts have touted countless use cases for artificial intelligence, even in off-the-run areas like cybersecurity, health care, and trucking. When you sit and think about it, is it really a hard stretch to assume that A.I. will impact a lot of industries for the better? Certainly not… But, donât get too carried away dreaming of a world where A.I. powers absolutely everything. Iâve been investing long enough to see a few new technologies hit the market â namely cloud computing, 3D printing, and solar energy. All these technologies were exciting at the time, and many are still relevant today. And during that time, plenty of stocks were touted as the next big thing. But itâs important to understand that every tech movement comes with its share of winners and losers. Thatâs how I see the A.I. race unfolding. There will be a handful of standout, long-term winners… and, sadly, many losers too. Itâs important to figure out how to separate an A.I. winner from a loser… and to do it now, while itâs still early days. So for todayâs data-driven piece, Iâm going to tell you of one way to bet on A.I. that has a high likelihood of playing out well in the long term… Iâll even break down one of my favorite stocks to own for this trend, too… And Iâll share why itâs clear to me itâs still not too late to buy great stocks just like it. RECOMMENDED LINK [Elon Muskâs ChatGPT Could Soon Mint New Millionaires](
Elon Musk made $180 million on PayPal... $47 Billion on SpaceX... and $94.2 Billion on Tesla. Heâs about to shock the world again with his version of ChatGPT. And you could go along for the ride if you make [this one simple move](. Semiconductors are Your Picks-and-Shovel A.I. Play
Rule No. 1 for tech trends: Donât follow the fluff. Follow the money. Thereâs plenty of high-fluff promises being made in A.I. right now. Itâs important to separate the wild ideas about what A.I. could maybe someday do… with what itâs already doing. And what it needs to do it. The large language models that are at the heart of the A.I. story today require ultra-fast computing power to work. Chip speed and performance is paramount. As data needs for these models become more intricate, the demand for advanced semiconductors will only grow. This is why, since the release of ChatGPT on Nov. 30, 2022, semiconductors have been one of the best-performing areas of the market. Check out the chart below. It shows the performance of the VanEck Semiconductor ETF (SMH; black line below) from Nov. 30, 2022, to today. Itâs more than tripled the S&P 500 ETF (SPY; orange line) and nearly doubled the tech-heavy Nasdaq 100 ETF (QQQ; yellow line):
Clearly for the A.I. gold rush, we should focus on the âpicks and shovelâ plays. The fundamental needs behind the technology itself. SMH is chock-full of high-quality companies that fit the bill, including Applied Materials (AMAT) Taiwan Semiconductor (TSM), and more. But one name, a leading stock in the semiconductor industry, has been on our radar for a long time at TradeSmith: KLA Corp. (KLAC). And if itâs not on your radar, it should be. Hereâs why… A Superstar Semiconductor Stock for Years to Come
KLA Corp. is a chip supply chain leader, providing tools for inspection and defects. That means as large chip customers spend on A.I. and other semiconductor areas, KLA is part of that growth. And while stories are good, true fundamental attributes are better. First, consider that KLA has a rock-solid Quantum Score of 75.9. Thatâs Jason Bodnerâs proprietary measure of a stockâs fundamentals, technicals, and institutional money flows. This green reading indicates that the company has stellar fundamental and technical attributes, forming one easy-to-understand ranking:
A lot goes into these scores, but the overall number is the key. If the stock is in the âsweet spotâ between about 65 and 85, itâs in a strong uptrend with great fundamentals without being wildly overbought. Speaking of great fundamentals, hereâs another two numbers that say you should keep this stock on your watchlist… On a five-year basis:
- Sales grew from $4 billion in 2018 to $10.46 billion in 2023. That represents a 21% compound annual growth rate (CAGR).
- Net income grew from $802 million in 2018 to $3.38 billion in 2023, amounting to a whopping 33.4% CAGR!
With growth like this, youâd think theyâd be shareholder friendly. And youâd be right. RECOMMENDED LINK [Aerial Footage of Jeff Bezosâs Next Trillion Dollar Bet](
Located 30 miles from Baltimore â Jeff Bezos has been quietly investing in one tiny company thatâs ground zero of a tech revolution thatâs going to change everything. Bank of America said the technology would be, âBigger than fire and bigger than all the revolutions that humanity has seen.â [And for investors who get in now profits could be massive â click here for full story](. Over the past five years, quarterly dividends have grown from $0.75/share to $1.45/share, representing a 93% increase. With healthy attributes like this, it should come as no surprise that the stock has dominated returns… and Big Money interest. As Iâve highlighted before, [superstar stocks all look the same through the lens of data](
- Follow the revenue growth
- Follow the earnings growth
- Follow the institutional support
KLA is the poster child of what it looks like to be a superstar quality stock. Whenever a stock fires on all three of these rare characteristics, pay attention. We have a unique blue signal that fires when this unique setup hits. Every time it does, that means it landed in our Top 20 list for institutional buying activity. In other words, based on our analysis, it was one of the most unusually bought stocks that Wall Street Big Money players were buying that week. Since ChatGPT was released, KLAC triggered the rare blue buy signal… and it kept repeating:
Now that is a chart signifying strong demand with all-star attributes. Few companies have similar profiles. Focus less on the fluff stocks and more on those with outstanding fundamental qualities that reward shareholders year after year. Regards, Lucas Downey,
Contributing Editor, TradeSmith Daily P.S. As I mentioned earlier, KLA is a well-known TradeSmith name… one that we hold in Jason Bodnerâs [TradeSmith Investment Report](. Jason uses the same process we showed you today to find high-quality growth stocks in a broad range of market sectors. With this process, his system has proven its ability to beat the S&P 500 by 7-to-1 over the last 25 years. If youâre looking for his latest breakthrough play, a health care stock released just days ago… [Click here](. Get Instant Access
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