Editor’s note: “Where to Focus Your Sights as the AI Boom Rages On” was previously published in November 2024. It has since been updated to include the most relevant information available.
In the 1990 film “The Two Jakes,” legendary actor Jack Nicholson says one of my favorite lines:
You can follow the action, which gets you good pictures. You can follow your instincts, which will probably get you in trouble. Or, you can follow the money, which, nine times out of ten, will get you closer to the truth.
I love that quote. In my experience, people say all sorts of things. Sometimes, they mean it. Sometimes, they don’t. But they pretty much always put their money where their true beliefs lie – and that is exactly why I “follow the money” on Wall Street.
If money is flowing into a certain sector or stock, it’s probably best to follow along.
And I’m not talking just any money – I mean the “smart” money.
Microsoft, for example, has given $10 billion to OpenAI – the maker of ChatGPT – to fund the creation of complex large language models. Amazon has poured $4 billion of its own into another AI startup, Anthropic, to help create new generative AI technologies. Alphabet just dropped another $5 billion into its self-driving unit, Waymo. Meta said it plans to spend up to $40 billion this year alone on capital expenditures, a bulk of which will go toward AI research and development.
The list goes on and on.
However, while AI is undoubtedly the hottest sector on Wall Street, we suggest that investors focus on a different type of AI stock than what has dominated the market over the past two years.
That is, ever since the AI Boom started in late 2022, a particular type of AI stock – what we like to call the ‘AI Builders’ – have been the biggest winners. These are the stocks involved in building the infrastructure necessary to support the Age of AI. Think things like AI chips, data centers, networking, and related equipment.
Those AI Builders have been all the rage. For example, from late 2022 to mid-2024, AI chipmaker Nvidia saw its stock soar more than 600%. And AI server supplier Super Micro rallied about 800%.
The ‘Builders’ dominated the first phase of the AI Boom. But now, it looks like we may be moving into this boom’s second phase, wherein the ‘AI Appliers’ will dominate.
Phase 2 of the AI Boom: Ushering in Wall Street’s Next Champions
In our view, the first phase of this boom was all about building the infrastructure necessary to create AI applications. The second phase will be all about applying AI to create real-world value.
And it appears that phase is beginning right now.
Earlier this summer, law enforcement tech solutions provider Axon launched a new AI product called Draft One, which automatically writes first drafts of police reports using data extracted from police body cameras. That’s hugely value-additive. And the results speak for themselves. Axon said Draft One is seeing record demand, building an order pipeline of over $100 million in just three months.
Meanwhile, AI lending firm Upstart has forever tried to disrupt the credit lending markets with AI. But the firm has proven unable to do so – until recently. Upstart recently said massive improvements in its AI modeling are improving deal flow and powering big profit margin expansion, offering investors the first-ever sign that maybe… just maybe… Upstart could use AI to redefine the lending markets.
And enterprise software provider Monday.com has noted that its new general AI (genAI) chatbot is successfully resolving about 50% of the customer service tickets it sees. This is allowing Monday.com to address more customer service tickets without as many customer service agents, driving incremental revenue growth while cutting costs. That’s why the company reported 30%-plus revenue growth in its most recent quarter. Not to mention, it has now surpassed $1 billion in annually recurring revenue, just a decade after its launch.
The Final Word on Winning AI Stocks
Folks, to us, the writing is on the wall. Companies are broadly figuring out how to innovatively deploy new AI applications to create real-world economic value.
And the AI Appliers should reign supreme.
That’s why we think those stocks could be the biggest winners as the AI Boom continues to dominate over the next few months.
After all, AXON is up 150% this year. MNDY stock rallied 50% over the past six months (though, those gains were significantly diminished post-earnings). And UPST has popped about 60% in just the past three months.
Clearly, the AI Applier stocks are catching fire. And we think they’ll be the leaders on Wall Street for the foreseeable future.
Be sure not to miss out on this big pivot. It will likely prove to be a fantastic way to profit in the Age of AI.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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