Tag Archives: tech stocks

Looking to invest in AI? Consider a large-cap tech ETF

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Canadians asking how to invest in AI may want to consider an ETF holding large-cap tech stocks with diversified exposure to the rise of artificial intelligence

Deposit Photos

By David Wysocki

(Sponsor Content)

The rise of AI has sparked a huge wave of investor interest. Generative AI tools like Chat GPT have many Canadians asking how they can invest in AI, or wondering if they’ve missed the wave of excitement around this new technology.

We believe that this latest wave of excitement around AI is only the first stage of investor interest in what could become a technological mainstay for years or even decades to come. There could be hiccups and corrections in this area of the market in the short-term, but in the long-term we believe in the investment prospects of AI technology.

The question remains, though, where can Canadian investors go to find AI exposure for their investment portfolios? We believe that Canadians looking to invest in AI could consider the prospects of a large-cap technology ETF.

What is AI and how do companies make money from it?

AI stands for Artificial Intelligence and AI technologies are essentially machines that can perform cognitive functions we normally associate with a human mind. These are functions like critical analysis, prediction, and the creation of original works. AI tools are all around us and have been integrated into technologies for almost three decades, whether in gaming, online shopping, or social media.

In 2023 much of the focus around AI has been on one specific subset: generative AI. Generative AI is a form of AI focused on the creation of original works. Generative AI tools can write text or code, create images, even generate audio and video.

The business applications of AI in general, and generative AI in particular, are wide. First and foremost, generative AI can help businesses operate more efficiently. Many repetitive process tasks such as writing technical guides, analyzing legal text, conducting background research or even generating graphics can be done with an AI tool.

AI, however, cannot replace human workers entirely. In their current state AI technologies can add efficiency and scale to certain tasks, but they are not replacing human workers — especially highly skilled workers — en masse.

Companies in the tech sector developing AI software, as well as hardware tools that support AI, are seeing immediate business impacts as their AI tools are now in demand from a wide range of industries. So far, large-cap tech companies have been leaders in this AI race.

Why large-cap tech companies are AI leaders

The rallying value of technology stocks in 2023 so far has been driven largely by large-cap tech companies. In a still-uncertain macro environment, investors have flocked to large-cap tech for the combination of market share, business fundamentals, and exposure to innovation that these companies bring.

One of the innovation trends that has peaked investors’ interest is the rise of AI, specifically generative AI: tools like Chat GPT or Dall-E that can generate an original image or piece of text. What has made this AI investment trend interesting, however, is that it has largely focused on large-cap companies.

Historically, when a new technology comes into investors’ focus, large-cap companies capture some positive growth trends, but the biggest gainers in the short-term are usually smaller-cap tech companies tied directly to the new tech. In the case of generative AI, there has been a paradigm shift. Large-cap companies like Google, Meta, and Microsoft have been so quick to roll out and announce new AI tools that they’ve been some of the primary beneficiaries.

Put simply, large-cap companies have established leadership in the AI space. But, there’s another key reason why large-cap companies, especially combined in an ETF package, can be attractive for Canadians looking to invest in AI: diversification.

How diversified exposure can benefit an AI investor

It takes more than software to build a market-leading AI. The end output of a generative AI tool is built on incredibly complex algorithms, software platforms, cloud infrastructure, and — crucially — hardware like semiconductors.

Semiconductors are the fuel behind the rise of AI, as investors recently experienced through Nvidia’s stock boom. That spike followed forecasts from Nvidia of demand for its semiconductors from other large-cap tech companies building AI tools and platforms.

The rise of AI has had similar impacts on a range of different tech subsectors. It has impacted areas like tech devices, software, and hardware in different ways. Investors seeking exposure to AI can gain breadth of exposure through an ETF holding large-cap stocks from many tech subsectors.

The Harvest Tech Achievers Growth & Income ETF (HTA:TSX) works on the underlying investment thesis of investing in large-cap companies across the tech sector to gain diversification. HTA is designed to capture a range of growth opportunities in the technology sector, and the rise of generative AI has been a test case for the ETF’s long-term objective. Its varied exposure to large-cap companies in semiconductors, software, social media, and even IT services has allowed it to capture a wide range of positivity from investor interest in AI. Continue Reading…

SPACs, NFTs and another Tech-inspired Silly Season

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LowrieFinancial.com: TechDaily/Unsplash

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Is it just our imagination or has there been an uptick lately in exciting “new” trading tactics for seizing riches from exotic new markets?

After a year of sitting at home, an excitable generation of do-it-yourself traders has replaced traditional leisure-time activities with online pursuits: including aggressive, Tweet-worthy trading for fun and profit.

The result? Waves of volatile financial feeding frenzies and overnight sensations, egged on by a brood of freshly hatched social media stars and a spate of flashy new trading platforms with captivating names like Robinhood.

All this might seem new and different, if I hadn’t already seen such eerily similar circumstances so often before, with so many unhappy endings. I suppose that puts me in the same curmudgeonly camp as 97-year-old billionaire Charlie Munger (Warren Buffett’s long-time Berkshire Hathaway partner). He pulled no punches in this recent interview about Robinhood:

“[Some] may call it investing,” he said, “but that’s all bulls**t. It’s really just wild speculation, like casino gambling or racetrack betting. There’s a long history of destructive capitalism, these trading orgies whooped up by the people who profit from them.”

Speaking of Warren Buffett, a recent Financial Post article asked the question: “What would Warren Buffett make of this stock market silly season?”  The answer was that he already has weighed in on the matter many times before, including one of my favourite “Buffettisms”:

“The stock market is a device for transferring money from the impatient to the patient.”

Impatience in Action

But maybe this time is different after all? Let’s take a closer look. The current wave of “get rich quick” mentality launched in January 2021, when a Reddit-driven rally abruptly sent the prices of several unloved stocks like GameStop through the roof.

More recently, special purpose acquisition companies (SPACs) have captured a lot of attention. “When SPAC-Man Chamath Palihapitiya Speaks, Reddit and Wall Street Listen,” observed a recent Wall Street Journal column. “Amateur traders hang on [Palihapitiya’s] every word for clues about his next target: and for the insults he hurls at the high-finance elite.”

Non-fungible tokens (NFTs) have also been taking the trading world by storm. If you think of an NFT as being like a collectible — say, an autographed baseball card — but in digital format, you’re getting close to envisioning its worth. Similar to playing cards, people are collecting these pieces of code, typically exchanging them in cryptocurrency such as bitcoin.

How much can an NFT be worth if the collectible attached to it is in high demand?  However much the market decides.  In this recent extreme case, “NFT Mania” garnered $69 million for a piece of digital artwork.

Innovations vs. Investments

At least on paper, some have amassed rapid fortunes by trading into these sorts of innovations to catch a wave of risk-laden opportunity. But will these brave speculators manage to convert their good fortune into lasting wealth once today’s trends fizzle or fly? Continue Reading…

Motley Fool: If you like FANG stocks, you should love Chinese BAT stocks in correction mode

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My latest Motley Fool Canada blog was published Tuesday. It takes a look at the Chinese equivalents of America’s FANG (or FAANG) technology stocks. The FANGs have been surging ever higher this year although most came down Monday with Netflix as the latter’s subscriber growth disappointed somewhat. You can find the full MotleyFool blog by clicking on the highlighted (and self-explanatory) headline: If you like FANG stocks near their highs, you should love BAT stocks while China’s in a bear market.

Credited to Mad Money broadcaster Jim Cramer and RealMoney.com analyst Bob Lang early in 2013. FANG famously stands for Facebook, Amazon, Netflix and Google although some have added Apple to make it FAANG.

BAT stands for Baidu, Alibaba and Ten Cent. The influential weekly British newspaper, The Economist, recently had an interesting article comparing the BATs to the FANGs. (See FAANGs v BATs in the July 7, 2018 edition). The magazine described a titanic battle between these American and Chinese tech giants, which it said have a combined stock market capitalization of more than US$4 trillion.

Since the Motley Fool demands that writers disclose all their holdings mentioned in articles, I don’t mind stating here that I’ve long owned the FANGs as well as Apple, if only because my Millennial daughter twigged me to some of the names. I also bought Ali Baba on its IPO in 2014 but only bought into Baidu and Ten Cent this summer, in part as I researched this article (or was it the other way round?). As a rough analogy, I think of Ten Cent as China’s equivalent of Facebook, with a gaming kicker. Baidu is more or less a Google-like Chinese search play and Ali Baba has been characterized as being a type of Chinese hybrid of Amazon, Facebook and Google.

I would have to characterize these investments as speculations, so as the old saying goes, don’t invest more than you’re prepared to lose.

 

4 small-cap Tech Stocks to watch

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By Sia Hasan

Special to the Financial Independence Hub

The small-cap technology stock sector is fascinating in that it’s comprised of companies that have the potential to grow fast. Small caps are considered riskier than large- or mid-caps, and this means they have a higher potential for making huge profits for investors.

However, this is not to say that you should invest in small-cap tech stocks blindly. With a little due diligence, you can accurately determine the winning companies that can overcome the risks to move higher and give you lucrative returns. Here are some of the top small-cap stocks that are already excelling in the stock market, and which you might consider for investment.

Oclaro Inc. (OCLR, Nasdaq)

Oclaro Inc. is an optical networking company that’s a serious player in optical networking for high-speed global networks. The company offers transmission products and modules to telecom firms, enterprise networks, and data centers. While OCLR is a small-cap company, it is in competition with some of the biggest players in networking, such as Cisco Systems. However, OCLR focuses on core markets and high-speed components, and this has given it the cutting edge in the industry.

The company has shown great potential for growth, especially after establishing a solid position in China. OCLR aims at modernizing and upgrading its computing and telecom speeds, an indication of impending growth for the company. This great potential makes it an ideal company to invest in as its stocks are bound to generate even better returns in the years to come.

Celestica Inc. (CLS, NYSE)

Celestica Inc. is a popular company in the electronic manufacturing services (EMS) industry. Based in Canada, it provides a broad range of products such as wireless networking, telecommunication equipment, smartphones, storage devices, and printer supplies to original equipment manufacturers. The company has consolidated its services, allowing clients to purchase various products from them. This gives Celestica the upper hand in the industry in case of instances of market contraction in the EMS industry.

In the past few years, Celestica has begun to focus more on becoming a niche market provider rather than on the consumer market. This is because a significant proportion of its revenue comes from industrial companies. Management projects that the net profit margin will continue to grow from the current 2.18 per cent, making the company an excellent choice for some investors.

Zillow Group (Z, Nasdaq)

Zillow Group is a small-cap company that operates one of the largest a real estate informational websites and a mobile phone application. Continue Reading…

Do you need to “De-FANG” your portfolio of giant US tech stocks?

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Do you need to De-FANG your portfolio or are you so focused on Canada that you’re actually underweight on the big US tech stocks?

My latest MoneySense column looks at the post-Trump surge in tech stocks and the more recent retrenchment in the sector. For the full article, click on the highlighted text here: Do you need to de-FANG your portfolio.

FANG is of course the famous acronym created by Mad Money’s Jim Cramer and stands for Facebook, Amazon, Netflix and Google.

But as the piece goes into in some detail, and per the image above, there are alternative acronyms that include Apple and Microsoft, although not IBM (despite the graphic above).

The question is whether so-called “Couch Potato” type investors who use the MoneySense ETF All-stars already have sufficient technology exposure to participate in the expected long-term growth of technology and particularly Internet giants like Google, Facebook, Amazon and the like. Certainly after last week’s  big announcement that Amazon seeks to acquire Whole Foods, this question is increasingly relevant.

As you’ll see, broad-based ETFs tracking the S&P500 index already have significant tech exposure: roughly a third in these names. Less so for global ETFs exposed to firms outside North America, although these too have healthy exposure to the sector.

Canadian-centric investors woefully underweight technology

Continue Reading…