We recently published a list of 10 Stocks That Will Benefit From AI. In this article, we are going to take a look at where Oracle Corporation (NYSE:ORCL) stands against other stocks that will benefit from AI.
Artificial intelligence has been the driving theme of the stock market over the past couple of years which have seen investors battle inflation and high interest rates. Ever since OpenAI publicly released ChatGPT in November 2022 and NVIDIA CEO Jensen Huang predicted the next year that there was a trillion-dollar market in play when it came to upgrading traditional computing hardware to accelerated computing, the stock market has seen no respite.
However, when it comes to AI stocks, not all of them have flourished. Apart from Huang’s firm, the world’s leading graphics processing unit (GPU) designer, shares of OpenAI’s biggest backer, i.e., the firm known for the Windows operating system, were two of the biggest initial AI beneficiaries. Between December 2022 and H1 2024, their shares have gained 631% and 75%, respectively. Other technology stocks have also ridden the AI wave and have posted gains ranging between 42% to 308%. Within these, the stock that has gained 308% is Facebook’s parent entity and its focus on GPU investments and success with the Llama open source model have caught investor attention.
These firms have primarily posted gains because the AI wave, as analysts would like to remind you, is in its early stages. This stage is characterized by investor interest in firms that are AI enablers. However, the next stage of AI investment could see investors broaden their horizons. Some of this diversification away from technology stocks has already taken place in the form of impressive performance by utility stocks in 2024. Their performance is evident through the utility component of the flagship S&P index gaining 28% from the start of the year to the end of November as it led the benchmark index by a percentage point.
We analyzed this stage in AI investment in great detail as part of our coverage of Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks. Stocks in this list range from utility firms to computer hardware providers, semiconductor firms, and glass companies. Within this list, data center hardware firms were quite common, and as you read below, you’ll find out why they might be the biggest beneficiaries of the next wave in AI investment.
Wells Fargo has extensively covered the topic of what other stocks apart from the most valuable in the world can benefit from artificial intelligence. Its research covers firms that benefit from AI spending and applications. Starting from stocks that might benefit from AI spending, the bank notes that these will primarily include areas where the money trickles from AI data spending. In 2025, it estimates that hyperscaler cloud providers’ capital expenditures can sit around a cool $180 billion. This is more than twice the expected spending by oil majors, which is estimated to sit at close to $85 billion.
So where will this money trickle down to? Well, WF believes that while the “largest portion of cost involved in constructing data centers is graphics processing units (GPUs) and the supercomputers that contain them,” other sectors that should not be ignored include “cabling; steel racks; cooling (liquid and air); electrical equipment (both inside and outside the box); and backup generators” along with others that “are required to lay the foundation and power generation to support the facility.” While it lists down the usual culprits of information technology, communications services, and software firms that are part of discretionary stocks as the beneficiaries of data center spending, WF also adds two other sectors. These are industrial and material stocks, as the bank believes that while a “data center may not be a factory, but if it walks like a duck and quacks like a duck, it might be a duck.”
It quotes research to share that since as much as 45% of the cost of building a data center “is related to land, building shell, and basic building fit-out,” firms that “supply steel, aggregates, cement, and water equipment and, by extension, construction and engineering firms as well as broad non-residential construction suppliers (such as industrial distributors)” can benefit from the $180 billion in estimated hyperscaler capital expenditure. WF adds that data center spending will also include electrical and HVAC systems, as it notes that this sector can benefit from the fact that “there are a relatively limited number of scaled suppliers of large electrical equipment, commercial HVAC systems, and diesel generators.”
For some materials and industrial stocks, you can check out 10 Best Materials Stocks to Buy According to Hedge Funds and 20 Industrial Stocks Already Riding the AI Wave.
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Our Methodology
To make our list of stocks that will benefit from AI, we ranked the stocks part of our list of Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks and ranked them by the number of hedge funds that had bought the shares in Q3 2024. This upgrades the list since it was published when the latest hedge fund data was unavailable and it narrows down the list of stocks to the top fund favorites.
Why are we interested in 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).
Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders In Q3 2024: 91
Oracle Corporation (NYSE:ORCL) is one of the biggest enterprise resource planning products providers in the world. It commands an 18.4% market share of the ERP market which makes it the second biggest firm of its kind. Oracle Corporation (NYSE:ORCL) has leveraged its experience of providing businesses with operational infrastructure to establish a foothold in the AI industry via its Oracle Cloud Infrastructure (OCI) business. With OCI, the firm aims to bring 131,072 NVIDIA Blackwell GPUs under its wing to take the lead in providing businesses with AI computing infrastructure. The bullishness in AI is also evident in Oracle Corporation (NYSE:ORCL)’s fiscal year 2026 guidance as it expects to earn $66 billion for 12% annual growth. By 2029, the firm aims to grow its revenue to $104 billion along with 45% in margins. Along with positive AI catalysts, management execution on these financial fronts also performs a key role in Oracle Corporation (NYSE:ORCL)’s hypothesis.
Mar Vista Investment mentioned Oracle Corporation (NYSE:ORCL) in its Q3 2024 investor letter. Here is what the fund said:
“Oracle Corporation (NYSE:ORCL) is seeing revenue acceleration as it benefits from several years of investing in cloud-based solutions, which are now driving demand. The company is seeing broad-based demand for multiple of its cloud offerings, including its Fusion ERP Suite, its NetSuite offering and the Oracle Database. In addition to those anchor products, Oracle is also gaining traction with its OCI Gen 2 platform-as-a-service offering, which is winning mindshare from leading cloud customers, including Open AI, due to its favorable performance and cost metrics. This OCI Gen 2 solution is well-positioned to become a viable hyper scaler offering, furthered by Oracle’s recently announced partnerships with Microsoft Azure, Google Compute Platform, and Amazon’s AWS, which have all agreed to host Oracle’s flagship database in their respective hyper-scaler cloud environments. We believe this could support a third leg of growth for Oracle as its large installed base of database customers shift from on-premises to cloud deployments. As database customers migrate to a Cloud subscription model, Oracle could increase database software support revenues by 3-to-5 times. We continue to believe Oracle is well-positioned to grow intrinsic value strong double-digits over our investment horizon.”
Overall, ORCL ranks 8th on our list of stocks that will benefit from AI. While we acknowledge the potential of ORCL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ORCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
