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 MasTec, Inc. (NYSE:MTZ) 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 workforce of engineers and construction workers in professional gear, showcasing the company’s capabilities in developing energy infrastructure solutions.
MasTec, Inc. (NYSE:MTZ)
Number of Hedge Fund Holders: 42
YTD Return as of August 1: 48%
Approximate Percentage Revenue from AI: 8%
MasTec, Inc. (NYSE:MTZ) is an infrastructure construction company that provides engineering, building, installation, maintenance, and upgrade services for communications, energy, utility, and other infrastructure. The company is one of the largest construction firms in the US and has the geographic reach, scalability, and financial stability to be one of the biggest beneficiaries of the data center boom in the AI space. The firm also provides design, construction, and maintenance services for wireless networks. As more AI products penetrate households, high speed connectivity is going to be a key for realizing the true potential of these products. A lot of investment is thus geared towards improving wireless connection speeds across the US, with MasTec being one of the primary beneficiaries.
Jose Mas, the CEO of MasTec, Inc. (NYSE:MTZ), underlined during the second quarter earnings call that the communications and pipeline segment of the firm continued to deliver solid margins despite pressures in the power delivery segment. He said the diversification efforts of the firm in the energy domain were serving to offset power delivery worries. He noted that despite short term pressures, the long-term power market predictions bode well for the future of his firm.
In its Q1 2024 investor letter, First Pacific Advisors, an asset management firm, highlighted a few stocks and MasTec, Inc. (NYSE:MTZ) was one of them. Here is what the fund said:
“MasTec, Inc. (NYSE:MTZ) is a contractor that builds and repairs infrastructure for telecoms, electric utilities, oil and gas pipelines and the clean energy industry. The company benefits from strong spending for 5G in telecom and government support (including the Infrastructure Investment and Jobs Act) for clean energy and the electrical grid.10 The Mas brothers have an impressive history of rolling up smaller players and growing earnings, most recently in the electrical and clean energy spaces. But we became uncomfortable with the low margins and competition in the electrical utility and clean energy businesses. On Aug 4, 2023, in its Q2 2023 earnings release, the company reduced guidance, and we began to exit our position, partially in Q3 2023 and fully by the end of Q4 2023.”
Overall MTZ ranks 16th 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 MTZ 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 MTZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.