We recently compiled a list of the 30 Most Important AI Stocks According to BlackRock. In this article, we are going to take a look at where KLA Corporation (NASDAQ:KLAC) stands against the other AI stocks.
Artificial intelligence has been the buzzword around Wall Street for many months but a recent selloff in the technology sector has ignited fears of an AI bubble. Investors are looking towards experts to help them make better investment decisions. In a recent commentary on the AI market, as well as the macro conditions surrounding the economy, the investment titan highlighted multiple factors contributing to market volatility, including recession concerns, pre-US election jitters, and profit-taking. Despite these, the investment firm noted, US corporate earnings have been resilient, with the S&P 500 showing 13% growth in the second quarter of 2024, surpassing expectations. The AI sector remained a key theme of this growth, but BlackRock relented that investors were becoming cautious about the scale of AI spending by tech companies. In this environment, the investment firm recommended diversifying investments into energy, utilities, real estate, and resources tied to AI infrastructure.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
Overall, the wealth wizard advocated for broadening investment exposure beyond US tech stocks, particularly into sectors benefiting from ongoing AI buildout, while remaining cautious about Japanese equities and US short-term bonds. In the weekly commentary, the advisory highlighted that the US economy appeared more resilient than anticipated, with broad-based earnings growth suggesting stability. However, inflation remained a concern, and BlackRock expects it to limit how much the Federal Reserve can cut interest rates in the medium term. The investment firm noted that markets were pricing in significant rate cuts, but expectations seemed overblown given persistent inflation pressures, especially from wage growth. The investment titan suggested looking to European markets for income opportunities and remaining underweight on short-dated US Treasuries in favor of medium-term maturities and quality credit.
The investment firm also underlined the broader market backdrop in the weekly commentary, noting that US stocks fell due to recession fears, with the S&P 500 experiencing its largest weekly drop in 18 months. Treasury yields also declined as investors priced in expected Fed rate cuts. The advisory, however, viewed these recession fears as overstated, pointing to US jobs data that showed slowing but steady employment growth. Analysts at the investment firm maintained that wage gains were unlikely to bring inflation back to the Fed’s 2% target in the near term but cautioned that the August Consumer Price Index (CPI) data would be crucial in determining inflation’s trajectory. A surge in immigration had contributed to easing wage inflation, according to the financial firm’s report, but the long-term labor supply trend would influence the Fed’s ability to adjust rates.
Read more about these developments by accessing Billionaire Stan Druckenmiller Is Betting On AI Infrastructure, Tobacco and Industrial Stocks and 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst.
Our Methodology
For this article, we selected AI stocks by consulting an investor note from prominent investment firm BlackRock. 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).
The inner workings of a semiconductor manufacturing facility, neon hued machines humming with activity.
KLA Corporation (NASDAQ:KLAC)
Number of Hedge Fund Holders: 55
KLA Corporation (NASDAQ:KLAC) markets process control and yield management solutions for the semiconductor industry. The company is well-positioned to benefit from the CHIPS Act, a legislative initiative aimed at revitalizing chip manufacturing in the US. Additionally, it stands to gain from the growing AI trend as firms invest in AI data centers, which rely heavily on these chips. The firm is expected to offer services like wafer inspection systems for advanced nodes and strengthen its presence in testing and packaging segments. In the final three months of fiscal 2024, the company’s AI services business reached $614 million, reflecting a 4% increase sequentially and 14% growth year-over-year.
Richard Wallace, the CEO of KLA Corporation (NASDAQ:KLAC), noted during the fourth-quarter earnings call that long-term drivers, such as foundry logic, continued technology scaling, and the gradual rise in capital intensity, remain favorable for the company. He also mentioned that memory markets are expected to return to growth in 2025, driven by technological developments in AI, high-bandwidth memory, and an improving supply-demand balance.
Overall KLAC ranks 13th on our list of the most important AI stocks according to BlackRock. While we acknowledge the potential of KLAC 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 KLAC 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.