When you think of investing in artificial intelligence (AI) stocks, it's probably global tech giants like Nvidia that first spring to mind. However there are a whole raft of companies outside the tech space that are also pivoting their businesses to capitalise on the benefits of AI.
For example, many retailers are using AI to transform the way they interact with customers. Med-tech companies are pioneering advancements in diagnostics and treatments using the new technology. Real estate companies are cashing in on the surging demand for warehouse space. Even energy providers are looking to benefit from the increased demand for power to fuel AI technologies.
Whether you're looking to jump on the AI investment bandwagon by buying a traditional ASX tech stock or sneak aboard via a less obvious path, you're in luck!
Because we asked our Foolish writers which ASX AI stocks they think offer the best buying right now.
Here is what they said:
8 ASX that could be set to benefit from the AI megatrend (smallest to largest)
- IPD Group Ltd (ASX: IPG), $440.40 million
- Dicker Data Ltd (ASX: DDR) $1.75 billion
- Life360 Inc (ASX: 360), $3.15 billion
- Betashares Nasdaq 100 ETF (ASX: NDQ), $4.89 billion
- AGL Energy Limited (ASX: AGL), $6.87 billion
- Sonic Healthcare Ltd (ASX: SHL), $12.17 billion
- Pro Medicus Limited (ASX: PME), $13.70 billion
- Goodman Group (ASX: GMG), $67.93 billion
(Market capitalisations as of market close 14 June 2024).
Why our Foolish writers say these ASX AI stocks are smart long-term buys
IPD Group Ltd
What it does: IPD Group distributes electrical and automation solutions in Australia. With more than 70 years of experience, it offers services including power distribution, industrial control, renewables, and testing. The company supports various sectors, such as power generation, infrastructure, and commercial facilities, leveraging renowned global brands like ABB and GE.
By Kate Lee: In March this year, Tesla boss Elon Musk predicted the rapid expansion of AI and electric vehicles (EVs) would lead to supply crunches in electricity and transformers as early as 2025. AI computer systems consume significant amounts of electricity, and the AI boom will inevitably drive higher demand for data centres, which also rely heavily on electrical power.
The anticipated supply crunch fueled by AI-related demand could exacerbate the country's already-strained power supply. As reported by The Australian last month, the Australian Energy Market Operator (AEMO) warned of potential power shortages in New South Wales and Victoria due to delays in new transmission lines and renewables projects.
I think potential AI-fuelled energy shortages may present IPD Group with a growth opportunity as the industry faces the need to upgrade the current electricity supply grid and move to greener energy sources.
IPD Group is not only a distributor of various electric systems but also aims to become a one-stop shop for solar energy systems through its recent acquisition of Addelec and Gemtek.
Two weeks ago, IPD Group provided a bright outlook for FY24. The company expects to report earnings before interest, tax, depreciation and amortisation (EBITDA) between $39 million and $39.5 million, implying 42% growth from a year ago at the midpoint. These projections exclude costs from the acquisitions of EX engineering and CMI Operations.
With the company's exposure to data centres, solar energy systems, and electricity testing, I believe IPD Group is well-positioned to benefit from the anticipated power shortages led by the AI revolution.
The IPD Group share price is down 20% from its all-time high of $5.42 in February this year. Based on trailing earnings, the company is trading at a price-to-earnings ratio of 21x.
Motley Fool contributor Kate Lee does not own shares of IPD Group.
Dicker Data Ltd
What it does: Dicker Data is in the business of wholesale distribution of computer hardware and software. It has specialised exposure to the AI segment, boasting major relationships with such AI giants as Nvidia and Microsoft.
By Zach Bristow: As an investor focusing on AI stocks, Dicker Data has caught my attention in 2024. Following a sharp pullback in its share price over the last six months, it stands out as my top AI stock pick for June.
Why? Well, I think Dicker Data has several things going for it right now.
For one, the company recently reported it's in a "leadership position in the artificial intelligence arena", flaunting its competitive advantage as "the only end-to-end Nvidia distributor" in the region and "the number one distributor" of Microsoft's Copilot program.
Dicker Data stock was also recently upgraded by Goldman Sachs to a 'neutral' rating with a $9.85 price target — slightly above the current share price. The reasons for the upgrade were cited as being Dicker Data's defensive revenues and strong balance sheet – arguably standout attributes in the ASX tech sector.
The company has also grown its operating margins in the last 12 months to 4.8% from 4.4%. So even if broad economic growth was softer going forward, the company was positioned for earnings growth, Goldman said.
Tailwinds for this earnings growth are expected to emerge from a recovering PC market in the second half of CY 2024.
With exposures to such colossal tech giants as Nvidia and Microsoft, the extent of Dicker's recent selloff is too deep, in my opinion. I think this makes Dicker Data shares – trading at a price-to-earnings (P/E) ratio of 20 times – appear fairly valued relative to peers.
Motley Fool contributor Zach Bristow does not own shares of Dicker Data Ltd.
Life360 Inc
What it does: Based in the United States, Life360 develops software that's largely used for location sharing. The company's smartphone app is favoured by families looking to track their children's locations or to help keep elderly people and folks with special needs safe.
By Bernd Struben: The Life360 share price has surged 99% year to date, and I expect there are more outsized gains to be reaped in the years ahead.
The company has been rapidly growing its customer base. As at 31 Match, Life360 reported servicing some 66 million monthly active users in more than 150 countries.
Earlier this month, the ASX AI stock pulled off a successful Nasdaq initial public offering (IPO). The broader exposure and increased capital available to the now dual-listed company should support ongoing growth.
And the AI revolution could well help supercharge that growth.
At the end of May, Morgan Stanley noted, "We see Life360 as having access to huge volumes of user data, from personal details to daily habits, driving patterns and behaviours."
With all that AI-friendly data at hand, the broker said it saw significant long-term potential for Life360 "in terms of both monetisation and user experience of consumers being served compelling offers".
Motley Fool contributor Bernd Struben does not own shares of Life360 Inc.
Betashares Nasdaq 100 ETF
What it does: The BetaShares Nasdaq 100 ETF is an exchange-traded fund (ETF) that tracks the largest 100 non-financial companies on America's Nasdaq stock exchange.
By Sebastian Bowen: It might seem strange to think of this index fund as an artificial intelligence stock, but hear me out. The Nasdaq stock exchange is one of the two major exchanges over in the United States. It is well-known as the home of choice for almost all of the US' big tech giants.
An investment in this ETF is an investment in the likes of Apple, Microsoft, Alphabet, Nvidia, Meta Platforms, Amazon, Netflix, and Tesla.
These stocks happen to be the largest movers and shakers in the AI space today. And you can get a slice of all of them using this simple index fund. In fact, for every $1 invested in the NDQ ETF today, around 8 cents each will go towards Apple, Microsoft, and Nvidia shares, respectively.
As such, if one was seeking easy exposure to a range of world-class AI stocks this June, I would look no further than the BetaShares Nasdaq 100 ETF.
Motley Fool contributor Sebastian Bowen owns shares of Apple, Microsoft, Alphabet, Meta Platforms, Amazon, Netflix, and Tesla.
AGL Energy Limited
What it does: AGL is one of Australia's largest energy generators, with some coal generation including Loy Yang A and Bayswater. It's also one of the country's largest energy retailers, with around 2.4 million customers, as at 31 December 2023.
By Tristan Harrison: Earlier this year, Yukio Kani, the CEO of Japan's largest power provider, said that data centres were "very hungry caterpillars", according to reporting by the Wall Street Journal.
The Australian Financial Review also recently reported that data centres were already using 5% of Australia's electricity. Large-scale construction around the country could see data centre capacity more than double by the end of the decade, with an increase from 1,050MW to 2,500MW. That would equate to growth of 13% per year.
Thus, the surge in AI, along with Australia's rising population and the long-term adoption of electric vehicles, could lead to significant energy demand increases in the coming years.
As one of the largest players in the Australian energy market, AGL could benefit greatly from this growing demand.
Furthermore, while national energy demand is predicted to rise, coal energy generation is scheduled to be taken offline over the next decade or so. Less electricity supply could lead to rising electricity prices and, ultimately, stronger profits.
According to UBS estimates, the AGL share price is currently valued at approximately 8x FY27's estimated earnings.
While I don't currently own AGL shares, I'm seriously considering buying some in the coming weeks for the reasons outlined above.
Motley Fool contributor Tristan Harrison does not own shares of AGL Energy Limited.
Sonic Healthcare Ltd
What it does: Sonic Healthcare is ubiquitous in the pathology, laboratory, and radiology domain. The company is a truly global business, with operations in countries such as the United States, Australia, Germany, and the United Kingdom. While artificial intelligence may not be what Sonic is known for, innovation has long been a part of its DNA.
By Mitchell Lawler: Worldwide, healthcare costs are ballooning following the latest bout of inflation.
In Australia, hospital operator Ramsay Health Care (ASX: RHC) runs on a paper-thin margin of 1.4% as reimbursements fail to keep pace with rising costs. Sonic Healthcare has also felt the squeeze, with revenue from its services on the Medicare Benefits Schedule (MBS) declining in real terms.
It's clear companies need a way of enhancing productivity to grow profitability in this situation.
Sonic Healthcare is making strides in AI-led improvements. For example, Franklin.ai is a joint venture aiming to introduce AI to pathology for improved scaling. Likewise, PathologyWatch is a recent acquisition that is developing AI-powered melanoma detection.
The current strain on healthcare companies may benefit Sonic Healthcare as it utilises AI to potentially outperform its competitors.
Motley Fool contributor Mitchell Lawler owns shares of Sonic Healthcare Ltd.
Pro Medicus Limited
What it does: Pro Medicus is one of the world's leading health imaging technology companies. Its crown jewel is the Visage platform, which is a complete solution for all an organisation's imaging needs.
By James Mickleboro: I think Pro Medicus could be a great option for investors looking for exposure to the AI megatrend.
This is because the company is leveraging artificial intelligence to make its industry-leading platform even more powerful.
In addition, there are revenues that the company can generate from AI that it would not ordinarily be able to capture. In fact, Goldman Sachs estimates that "AI opens an incremental US$620mn TAM [total addressable market] today."
And, with the broker predicting this TAM to grow at a +34.7% compound annual growth rate (CAGR), it believes Pro Medicus is well positioned to "take share as the incumbent viewing platform across many large, and likely early adopters of new technology."
This is partly why the broker currently has a buy rating and a $136.00 price target on the company's shares.
Motley Fool contributor James Mickleboro owns shares of Pro Medicus Limited.
Goodman Group
What it does: Goodman is Australia's largest real estate investment trust (REIT), with a huge global property portfolio worth $80.5 billion.
By Bronwyn Allen: Goodman Group is an industrial property specialist and is seeking to capitalise on the AI megatrend by building large, high-quality data centres and expanding its global power bank.
Data centres currently make up 40% of the group's $12.9 billion development pipeline, and it's reviewing additional sites for potential data centre use now. Goodman's global power bank totals 4.3GW, with 2.2GW not yet secured but in the advanced stages of procurement.
The company said its strong balance sheet was enabling it to continue buying and developing high-tier data centres in sought-after locations. Last month, Goodman issued its third-quarter update and upgraded its FY24 guidance for a second time. The company now expects operating earnings per share (EPS) growth of 13% in FY24.
Motley Fool contributor Bronwyn Allen owns shares of Goodman Group.
