We recently compiled a list of the 20 Industrial Stocks Already Riding the AI Wave. In this article, we are going to take a look at where Corning Incorporated (NYSE:GLW) stands against the other industrial stocks that are already riding the AI wave.
When investors think of artificial intelligence (AI), they usually relate the thought to prominent hardware and software companies working in the technology sector. However, a much wider understanding of AI is needed in order to pick out the best stocks that are likely to ride the AI wave as it evolves over time. Contrary to public opinion, one of the smartest ways of jumping on the AI bandwagon is by playing the industrial sector. Since the start of 2023, the beginning of the AI boom in other words, industrial stocks have jumped close to 30% in value. Of these, the firms that are directly exposed to AI verticals have more than doubled in value. According to a Goldman Sachs study on the matter, in the fourth quarter of 2023, over 30% of industrial firms mentioned AI in their earnings reports, up from just 10% in the same period the preceding year.
In addition to the obvious picks in the semiconductor space, investors should turn their attention towards industrial firms that provide construction, engineering, electronics, cooling, and connectivity services. Even though these firms derive only a portion of their revenue from AI at the present, the explosive growth potential of AI can be a meaningful driver of their revenues in the coming months. Indeed, some indications of this can be gleaned from the fact that industrial firms linked to AI grew their revenues by almost 15% last year. This number is comfortably above their non-AI peers and the S&P 500 average for 2023. Industrial firms help manage the computational powers of AI data centers, make high speed connections possible, and also make sure they operate at optimal temperatures.
Lazar Naiker, an analyst at capital markets firm AGF Investments, explains how traditional data centers are different from AI ones. Essentially, AI data centers are powered by graphic processing units (GPUs), while their traditional counterparts are powered by central processing units (CPUs). GPUs operate at a faster speed and thus need higher bandwidth cables for communication with other GPUs. There is a 10 to 1 difference in the number of cables needed to power GPUs and CPUs. AI applications require constant communication between data center GPUs as well, the development of neural networks, so to speak, whereas this is not the case for CPUs. Another key difference is power consumption. Per Naiker, the GPU uses almost 5 times the power required by a CPU.
Our Methodology
For this article, we selected industrial stocks that posted more than 25% gains in 2024. From this list, we selected firms that have links to the AI universe and approximated percentage revenues based on these links. 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).
A technician wearing protective glasses installing optical fibers and cables.
Corning Incorporated (NYSE:GLW)
Number of Hedge Fund Holders: 31
YTD Return as of August 1: 31%
Approximate Percentage Revenue from AI: 18%
Corning Incorporated (NYSE:GLW) engages in the display technologies, optical communications, environmental technologies, specialty materials, and life sciences businesses. The optic products offered by the firm have witnessed a surge in demand in the past few months as large companies invest in AI data centers. In addition to these connectivity products, the firm also provides the glass that is on top of popular smartphone brands. These smartphones are becoming AI powerhouses in themselves. The company grew the optical business by over 40% in the second quarter, compared to the same period last year, due to AI demand, even as the smartphone market remained soft.
Wendell Weeks, the CEO of Corning Incorporated (NYSE:GLW), detailed during the second quarter earnings call that the growth in revenue, sales, and earnings during the first half of 2024 was primarily driven by strong adoption of optical connectivity products due to soaring demand for generative AI. Weeks noted that new AI data centers needed about 10 times the fiber optic connections utilized by normal data centers, largely due to compute power of new GPUs and the need to connect the GPUs together. He said his firm had helped customers design the links needed for this kind of interconnectivity over the past few years.
In its Q2 2024 investor letter, O’keefe Stevens Advisory, an asset management firm, highlighted a few stocks and Corning Incorporated (NYSE:GLW) was one of them. Here is what the fund said:
“Corning Incorporated (NYSE:GLW), another long-time holding, announced Q2 results would come in better than anticipated due to outperformance in their optical connectivity products used for Generative AI. Corning has long been a disappointing investment; with leading-edge technology, it consistently underperforms expectations. Their “springboard” plan, which revolves around $3 billion of excess capacity, seems to be the first sign in a long time that they are ready for a surge in growth. Management has frequently discussed the potential for operating leverage in nearly every conference call, anticipating a return to normal business conditions. Margins should expand over the coming quarters, driving EPS growth. The $3B in incremental sales could be worth in excess of $900m in EBITDA.”
Overall GLW ranks 11th on our list of the best industrial stocks that are already riding the AI wave. You can visit 20 Industrial Stocks Already Riding the AI Wave to see the other industrial stocks that are on hedge funds’ radar. While we acknowledge the potential of GLW 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 GLW 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.