Nvidia and the AI Chokepoint
Nvidia (NVDA) is the chokepoint in AI and stays essential to growth that remains strong. Bank of America set a $350 price target, up from about $219, roughly 50% upside. I agree with that call. The reason to like most tech names now is that earnings (E) are growing faster than prices (P). NVDA has a forward PE of about 22, which is low for a company whose earnings grow as fast as its do. Bank of America's target also rests on Nvidia's $105 billion investment commitment tied to OpenAI, along with other factors. Monetization is still ahead, but the trend is clear.
When earnings move 20, 30, 40, or 50%, stock prices follow. Record earnings mean record stock prices. So yes, big tech names can move 20 to 50%.
The Case for AI Demand
56% of U.S. companies now have an AI account and pay for these tools. Of those, 71% report higher labor productivity. Only about 7% say they have fully integrated AI. That gap points to a large runway, because the infrastructure is still being built. Nvidia and similar firms are essential to that buildout. If AI raises labor productivity, people will keep buying it. If it did not, it would be nothing more than a parlor game.
Lockheed Martin
Lockheed Martin (LMT) is a pick because the world will not sing kumbaya - wars are always here. LMT has a near-monopoly on replacing Patriot missiles, THAAD systems, and building the F-35. It holds $230 billion in order backlog, about three years of revenue locked in under government contract. A company with that much guaranteed revenue is one you want to buy.
Semiconductor Test Equipment: "Test, Connect, and See"
The trade goes beyond the Mag 7 to the essential parts that feed it. Four names group under the idea of test, connect, and see.
- Keysight Technologies (KEYS): up about 66% this year, with volatility and earnings due. 28% revenue growth and 42% earnings growth. Chips must be tested so a data center does not go down from one or two faulty chips. Keysight makes sure the chip goes in right.
- Teradyne (TER): a major chip tester, up 106%. Test equipment that confirms chips work before they ship.
- Lumentum (LITE): the light/laser name, up about 130%. Moving information between chips and factories runs over fiber optics, which is very fast, so this technology is essential.
- Teledyne (TDY): the "eyes of AI," up about 31% this year. Vision is essential to AI, and with robotics only starting, this name has a lot of room to run.
As AI chips get bigger, more expensive, and harder to make, they need more testing. Given how much is spent making these chips and how much they sell for, companies want to be sure the product works - so the testers become essential.
Cloud and the Mag 7: Amazon and Google
Big tech companies are either big or brilliant. Brilliant means doing one thing very well. Big means spending huge money on R&D. Amazon (AMZN) has the resources to spend heavily on R&D. Microsoft (MSFT), the biggest, spends about 2% of sales on R&D, which at that scale produces results. Both should keep leading. Google (GOOGL) sits in the same set of record-setting Mag 7 names.
ASML and the Supply Chain
ASML (ASML) is the only maker of the extreme ultraviolet light machine. The chain runs: you cannot have AI without Nvidia, you cannot have Nvidia without TSMC (TSM), and you cannot have TSMC without ASML. Each essential company gets a firm bid. Micron (MU) is also on the list, tied to rising AI subscription and adoption.
Bottom Line
Stay invested in this theme. If you are not investing in the future, you will not be part of it.
