We recently published a list of Beyond the Tech Giants: 35 Non-Tech AI Opportunities. In this article, we are going to take a look at where Brown & Brown, Inc. (NYSE:BRO) stands against the other not-tech AI stocks.
Investors have been desperately searching for a safer way to play the AI boom that has swept the US stock market over the past few months. Prominent investment bank Goldman Sachs recently released an investor note detailing which sectors of the economy would benefit from the AI craze, replacing obvious bull cases in the technology domain by thoughtful insights on the long-term impact of AI on utilities, industrials, retail, and healthcare. According to analysts at Goldman, AI tools looked set to help companies outside of the technology sector improve productivity and reduce labor costs. The investment titan detailed the insatiable appetite for AI, evidenced by NVIDIA becoming one of the valuable firms in the world over the past year, and noted that the market was yet to reward companies that have downstream AI exposure.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and AI News You Should Not Have Missed.
David Kostin, the chief US equity strategist at Goldman, wrote in the investor note that the AI boom was likely to play out in four key phases. The first phase, per the analyst, had been focused on NVIDIA, the chipmaker that is at the forefront of AI data center build. Kostin detailed that the second phase was likely to be about companies building AI infrastructure. Some examples of this include semiconductor, data center, networking, cloud, and security industries, as well as utilities. So far this year, the returns of stocks working in these industries have dwarfed the returns of the benchmark indexes. The third phase, continued the analyst, would be about companies able to put AI in their products and boost sales in the process. Kostin cautioned that these firms had lost ground against AI stocks in recent months.
The analyst claimed that firms falling in the fourth phase of the AI boom, ones who would enjoy productivity gains after adopting AI, had been ignored by the majority of the market so far. Kostin maintained that it was unclear when these downstream AI stocks, some of which are discussed in detail below, would rally and expand their earnings multiples, but stressed that this would happen eventually. The industrial sector highlights the Goldman theory in action. Since the start of 2023, industrial stocks have jumped close to 30% in value. Of these, the firms that are directly exposed to AI verticals have more than doubled in value. In the fourth quarter of 2023, over 30% of industrial firms mentioned AI in their earnings reports, up from just 10% in the same period the preceding year.
Our Methodology
For this article, we selected non-tech AI stocks by consulting an investor note from prominent investment firm Goldman Sachs. These stocks are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of an insurance product while an employee explains its features to a customer.
Brown & Brown, Inc. (NYSE:BRO)
Number of Hedge Fund Holders: 26
Brown & Brown, Inc. (NYSE:BRO) markets and sells insurance products and services in the United States, Canada, Ireland, the United Kingdom, and internationally. The company is primarily using AI tools to enhance customer and operational outcomes. As part of this plan, it has integrated AI-driven solutions through partnerships with platforms like Gryphon AI to improve their sales performance and compliance management. One example of this is that the insurance firm uses conversation intelligence and real-time coaching tools of Gryphon to help sales teams meet revenue targets more effectively. This system uses AI to analyze and guide sales conversations, improving overall engagement and outcomes.
Brown & Brown, Inc. (NYSE:BRO) is the typical under the radar AI stock. Wells Fargo recently upgraded the shares to Overweight from Equal Weight with a price target of $112, up from $94. In an investor note, the advisory noted that dealing with a potential recession, combined with potential lower interest rates, and the prospects for an extremely active wind season, the best sectors within insurance included personal lines plus insurance brokers, and Brown & Brown provided exposure to the middle-market, where pricing was holding up better than large account space.
Overall BRO ranks 30th on our list of not-tech AI stocks. While we acknowledge the potential of BRO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BRO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
