Investing in the AI Gold Rush: Oppenheimer’s Recommendations on Chip Infrastructure Stocks
As the demand for artificial intelligence (AI) technologies surges at an unprecedented pace, savvy investors would do well to focus on the supportive infrastructure fueling this evolution. Recent analysis from Oppenheimer’s expert, Edward Yang, underscores the opportunity presented by companies that produce essential components for the AI sector, particularly in light of the current chip shortage.
The AI Demand Dilemma
Yang notes a striking statistic: AI compute demand doubles every six months, while the performance of hardware only increases every two years. This mismatch has culminated in a “severe, structural shortage” of advanced semiconductors and the equipment necessary to manufacture them. Smart investors should look beyond the flashiness of well-known AI companies like Nvidia (NVDA) and Taiwan Semiconductor Manufacturing Company (TSM) and consider the underlying infrastructure players.
Invest in the ‘Picks-and-Shovels’
In any gold rush, the real wealth is often generated not by the miners but by those who supply them with the tools to succeed. Yang’s insight invites investors to target companies making the “picks-and-shovels” – in this case, the firms that produce the critical tools required for AI chip production.
Yang has identified Onto Innovation Inc. (ONTO) and Ultra Clean Holdings Inc. (UCTT) as prime candidates for investment, both receiving strong outperform ratings based on Yang’s analysis. He sets an ambitious price target of $260 on Onto’s stock, indicating a 27% upside potential from current levels. For Ultra Clean, he suggests that the stock could see a whopping 90% upside with a target price of $70.
Why Onto Innovation is a Key Player
Onto Innovation specializes in yield-enhancement tools critical for advanced packaging and high-bandwidth memory (HBM), which are increasingly in demand thanks to Nvidia’s top suppliers, such as Taiwan Semiconductor and SK Hynix. The company has experienced triple-digit growth, aligning well with the ongoing AI boom, making it a standout option for investors looking to capitalize on AI-related trends.
The Promise of Ultra Clean Holdings
Yang also highlights Ultra Clean Holdings as a company with burgeoning opportunities in the fields of HBM, advanced packaging, and vacuum-based extreme-ultraviolet lithography (EUV) tools. Notably, Ultra Clean is well-positioned to avoid complications arising from U.S.-China trade tensions, thanks to its strong local presence in supplying essential equipment to Chinese chip manufacturers. This localized advantage positions Ultra Clean as a reliable investment choice in a fluctuating geopolitical climate.
Long-Term Bottlenecks and Toll-Taking Opportunities
Yang’s commentary extends to the growing challenges faced by the AI ecosystem, noting that the current “AI gold rush” is likely to result in long-term bottlenecks. However, these issues can be alleviated by companies like Onto and Ultra Clean, which Yang believes will enjoy “toll-taking” status as their infrastructures become increasingly indispensable to AI chipmakers.
Other Stocks To Watch
Beyond Onto and Ultra Clean, Yang has also started coverage on KLA Corp. (KLAC) and Ichor Holdings Ltd. (ICHR), with these companies receiving perform ratings. Meanwhile, he has initiated coverage of Cadence Design Systems Inc. (CDNS) with an underperform rating, signaling a cautious outlook.
Conclusion: Embrace the Future of AI Investments
Investors now have a golden opportunity to tap into the burgeoning AI landscape by focusing on the less glamorous, yet critically important, chip infrastructure companies. As the world moves further into an AI-driven future, companies like Onto Innovation and Ultra Clean Holdings are poised for growth, ready to tackle the challenges and demands posed by this rapid technological evolution. By adopting a forward-thinking strategy grounded in traditional financial principles, investors can navigate the complexities of this AI gold rush and potentially reap significant rewards.
