The cooldown period for the broad basket of AI stocks, especially the semiconductors, appears to have ended, thanks in part to the rise of agents and powerful frontier models like Anthropic’s Claude Mythos. As we move into a phase of the AI boom that goes beyond just large language models or image generators, where AI could become exponentially more useful, perhaps it’s no surprise that investors are rushing back into the semi stocks.
Why bother picking and choosing stocks at another layer when the semis are standing behind the next wave(s)? Of course, after the latest surge in semi stocks, I do think that the valuation has become a tad on the excessive side. For the most part, it felt like explosive AI chip demand was already baked in going into the year. Since the latest run-up, it feels a tad excessive, even if the next leg does manage to shock and awe.
In any case, as agentic AI paves the way for digital labor and automation while completely gutting the software industry, all while world models and physical AI come into their own, I think it’s time to consider where the puck could head next. The semis might stand out as obvious winners in the next phase, but the problem, at least in my view, is that they’re already priced like massive winners.
Whenever you’re buying unstoppable names that can do no wrong, you could run the risk of overpaying. In this piece, we’ll look at candidates that actually have the power to level up their fundamentals at the hands of more powerful AI. While some names might be getting up there in price, I still think there’s far less hype compared to some of the more obvious winners at the lower levels of the AI stack.
Amazon
If embodied AI really is the next big leap, Amazon (NASDAQ:AMZN | AMZN Price Prediction) could be the Magnificent Seven name to own. Arguably, the company is already in the fast lane when it comes to rolling out the fleet of robotic laborers in the warehouse. As Amazon looks to automate everything from coding to delivery itself, I see the company as having the most ground to gain on the operating margin front.
The company isn’t just exploring possibilities, it’s putting physical AI to work. And with $200 billion in CapEx for the year, Amazon is spending a bit more than its Mag Seven peers. Once the script flips and investors start pounding the table for more, not less, CapEx, I think Amazon is poised to shine bright. Beyond physical AI, Amazon also has a strong horse in the AI chip race with silicon like Trainium and Inferentia.
Add AWS and the satellite connectivity growth engines into the equation, and I think Amazon stock is one of the bargains hiding in plain sight as the AI boom gets physical. The stock goes for just 32.1 times trailing price-to-earnings (P/E) right here despite soaring 35% in the past three months.
Walmart
In case you missed it, Walmart (NASDAQ:WMT) is now on the Nasdaq because it is, in fact, becoming more and more like an AI tech play by the day. Like Amazon, Walmart’s a massive retailer that’s been betting big on the rise of warehouse robots.
The company’s Symbiotic (NASDAQ:SYM) stake makes Walmart a firm that will not be left behind as warehouse automation becomes one of the next big sources of operating margin gains. The efforts and big bet in physical AI aren’t just to please Wall Street, though. The firm is cutting away at fulfillment costs, and I think the market might still be underestimating a company that’s already shown it can successfully pivot in the new era of retail.
Of course, the 44.0 times forward P/E multiple is getting a bit steep. Unlike Amazon, the retailer isn’t pouring $200 billion in CapEx for the year. And with its physical retail presence and grocery exposure acting as a huge moat source, especially in this inflationary environment, perhaps investors are right to reward Walmart in this climate. In short, it’s a defensive that’s also going on the offensive on AI.
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