We recently compiled a list of the 35 AI Superstars According to Goldman Sachs. In this article, we are going to take a look at where Teradyne, Inc. (NASDAQ:TER) stands against the other AI superstars according to Goldman Sachs.
US technology stocks have surged dramatically this year, largely driven by the growing excitement surrounding generative artificial intelligence (AI). However, according to research by investment firm Goldman Sachs, this rise is not indicative of a financial bubble like those of the past. The performance of these companies is expected to continue delivering solid returns to investors, fueled by the rise of AI superstars outside of the magnificent seven, among smaller tech firms and in non-tech sectors as well. However, Peter Oppenheimer, the bank’s chief of global equity strategy and the head of macro research in Europe, has advised investors to diversify their portfolios to manage risk.
While tech stocks have been dominant, contributing 32% of global equity returns and 40% of US equity returns since 2010, these returns are underpinned by strong financial fundamentals rather than speculative bubbles. The earnings per share for the tech sector have increased by 400% since the peak before the 2008 financial crisis, far outpacing other sectors, which collectively saw only a 25% increase. A key driver behind the outsized returns in recent years has been a small group of hyperscale companies, particularly those in software and cloud computing. These companies have leveraged their vast resources and high profitability to dominate the market, with recent performance surging even further due to optimism around AI.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and Beyond the Tech Giants: 35 Non-Tech AI Opportunities.
This has led to rising valuations, largely concentrated among a narrow group of market leaders. Peter Oppenheimer observes that this pattern mirrors historical trends in technological innovation. From the construction of canals in the 18th century to the adoption of the telephone, new technologies often attract vast capital and competition. Although this does not always result in financial bubbles, there is typically a period where prices decline as competition intensifies, ultimately leading to consolidation in the market. Over time, only a few large companies remain dominant, while growth shifts to secondary innovations that build on the original technology. The AI era is unique in that the dominant companies, which lead in AI, were also at the forefront of the previous tech wave — particularly in software and cloud services.
Their scale and profitability have positioned them well to absorb the high costs of AI investments. However, Oppenheimer notes that new competitors are emerging. The number of AI patents skyrocketed to over 60,000 in 2022, up from around 8,000 just four years earlier, suggesting that AI is following the typical pattern of large-scale capital growth and competition. Oppenheimer also points out that the companies pioneering a new technology are not always the ones that will create the most value from it in the long run. For instance, during the internet boom, telecom companies received significant investment, yet it was companies like those in social media and ride-sharing that capitalized on the internet infrastructure and achieved the greatest success. Similarly, as AI evolves, new companies could emerge as the next wave of tech superstars, reshaping industries beyond the current giants.
Let’s now take a look at the list of 35 AI superstars that are on the major bank’s radar. We compiled this list after consulting a report by the bank on the AI industry. These stocks are also popular among elite hedge funds and hedge fund sentiment is an important indicator that we pay a lot of attention to at Insider Monkey.
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 team of engineers discussing around a fully-equipped flex test platform system.
Teradyne, Inc. (NASDAQ:TER)
Number of Hedge Fund Holders: 41
Teradyne, Inc. (NASDAQ:TER) designs, develops, manufactures, and sells automated test systems and robotics products globally. The company serves key markets such as semiconductors, defense, storage, and wireless testing. It is scheduled to release its Q3 earnings later this month, with analysts forecasting a profit of $0.78 per share, a slight decline from the $0.80 per share reported in the same quarter last year. Notably, the company has exceeded Wall Street’s earnings expectations for the past four quarters, including a 13.2% beat in the previous quarter. For fiscal 2024, analysts project an EPS of $3.02, reflecting a 3.1% increase from the $2.93 reported in 2023.
Teradyne, Inc. (NASDAQ:TER) had historically been heavily exposed to the Chinese market, but has since relocated business elsewhere amid US export controls. Earlier this year, the company claimed that it had pulled $1 billion worth of manufacturing projects in China. This led to a close to 4% drop in revenues from China for the company during the end of last year, down from 16% to around 12%.
Overall TER ranks 32nd on our list of the AI superstars according to Goldman Sachs. While we acknowledge the potential of TER 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 TER but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
