These 3 stocks are appealing under-the-radar AI plays, UBS says
It can be hard to find overlooked stocks in the hottest corner of the market, but a few names might still be flying under the radar.
While the AI boom may be propping up the whole economy, it's also propping up investors' portfolios, and the most popular stocks look expensive.
UBS managing director Tim Arcuri said Monday that the AI trade doesn't look to be a bubble on the verge of bursting, despite concerns about huge capex by Big Tech and a relentless rally in the stock market in the past three years.
But that doesn't mean he's only focused on the Magnificent 7. He also sees ample opportunity in a few smaller AI stocks that have quietly rallied recently.
In his view, the strength of companies like Nvidia will fuel growth among groups of more niche tech stocks, specifically those in the semiconductor equipment space.
"You've got this double whammy, where you have this huge increase in demand, but also you've got Nvidia trying to move and get a little more leading edge," he stated. "And that's all going to trickle down to the supply chain."
Arcuri shared his top picks for under-the-radar AI stocks that he thinks investors should be watching:
- Micron Technology: +158% year-to-date.
- Lam Research: +116% year-to-date.
- Teradyne: +16% year-to-date.
Micron, which builds devices for memory storage, has still performed extremely well, despite a weak chip demand forecast that sent shares down in December 2024.
Arcuri doesn't think most investors are following its progress, but he believes it is poised for growth. In his view, the market's view of Micron stock is likely to shift as the company becomes more structurally stable, moving away from a historically cyclical business model.
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Semiconductor equipment producer Lam Research has also enjoyed a strong rally in its share price, and other analysts have touted it as a beneficiary of a weaker US dollar in 2025.
Arcuri added that it is his favorite stock in the semi equipment space, noting that he thinks it is poised to benefit from surging demand for computing power among AI hyperscalers.
"If you run some numbers on how much compute capacity is going to have to get added, and how much memory that will have to [be] added, and you run some numbers on how much it will cost to put that capacity in place and how much equipment will have to be bought, it's a really, really big number," he speculated.
Terydyne, the smallest company on Arcuri's list of under-the-radar AI stocks, builds automated test equipment for semiconductors, an area that he thinks will play a key role in the next phase of the AI boom as the infrastructure buildout accelerates.
"There's two companies in the world that make the testers to test this stuff," he said. "One is in Japan, and the other is Terydyne in Boston," he added, referring to Tokyo-based Advantest Corporation.
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