AI stocks: Where to find investment opportunities

Artificial intelligence (AI) has become a hot topic recently, with many investors looking for opportunities in this space. Henry Biddlecombe, Co-manager at Anchor Global Technology Fund, shared his insights on CNBC Africa about the AI hype and the investment landscape in the tech sector. As the conversations around AI are accelerating, especially after NVIDIA's recent positive numbers and sales forecast, investors are eager to capitalize on the potential growth in this sector. However, Biddlecombe warns about the dangers of getting caught up in the hype cycle. He compares the current frenzy around AI to past trends like e-commerce and the metaverse, where investors tended to overestimate short-term trends and singular opportunities. Biddlecombe advises investors to separate the noise from valuation when considering AI stocks. While companies like NVIDIA and OpenAI are well-positioned to benefit from the AI boom, their soaring valuations may not be justified. NVIDIA's stock, for instance, is up 180% year to date and trades at over 60 times forecasted earnings. Biddlecombe cautions against chasing the AI rally and emphasizes the importance of being mindful of stock prices influenced by hype. He mentions examples like Microsoft and Chegg, whose stocks experienced significant fluctuations due to perceptions about their AI products. When asked about the opportune time to invest in AI, Biddlecombe highlights the importance of diversification within the sector. He believes that no single company will dominate the AI space and suggests looking at bigger technology firms with reasonable valuations. Companies like Intel, Alphabet, and Apple are among Biddlecombe's preferred choices, while he advises against blindly investing in overvalued players like NVIDIA. In terms of South African companies, Biddlecombe notes the lack of significant AI players in the local market and warns investors to be cautious of companies trying to ride the AI wave without proper infrastructure and depth in the technology. Shifting focus to the broader technology universe, Biddlecombe shares his views on the tech sector's performance amid concerns about interest rate increases. He believes that the impact of higher interest rates on tech stocks has already been factored in and sees limited risks in the market compared to a year ago. While tech heavyweights have witnessed substantial stock appreciations this year, Biddlecombe urges caution regarding valuations in the tech space. He suggests that small to mid-cap companies and sectors like energy may offer more value in the current market environment. In conclusion, Biddlecombe's insights shed light on the AI hype and the investment opportunities in the technology sector. By navigating the hype cycle, diversifying investments, and staying mindful of valuations, investors can position themselves strategically in the evolving tech landscape.