As AI demand picks up, BofA expects 3 key suppliers' stocks to soar

Published Tue, Jan 9 20246:15 PM EST

Amala Balakrishner @in/amala-balakrishner @_amalabk

Stocks within the artificial intelligence theme have been getting a lot of love from analysts recently — including those at Bank of America. In a Jan. 2 note, the investment bank highlighted opportunities among what it calls "key AI suppliers," naming its top stock picks with significant upside potential right now. The bank's analysts, led by Robert Cheng, said they remain optimistic on AI even as some investors expect the ongoing boom to be "short-lived," as was the case during the internet bubble in the 1999s and with virtual reality in the 2020s. "We believe AI is different because the key players are global CSPs [cloud service providers] and enterprises, vs. mostly start-ups focusing on [the] consumer market during the internet and VR bubbles," they wrote. Enterprises or global CSPs — which include the likes of tech giants Google , Amazon and Microsoft — are investing in AI as they look for ways to boost sales, efficiency, and develop new products. BofA expects their AI investment to hit $164 billion this year, from between $127 billion and $146 billion between 2021 and 2022. This is going to require a steady stream of AI servers — and there is a "small and selective" list of suppliers, with many based in Taiwan, according to BofA. "Taiwan semis/hardware suppliers are essential for developing/testing new AI solutions with higher value-added and bargaining power," the analysts wrote, adding that AI will help increase the gross profit, margins and earnings of these companies. Here are three of BofA's top Taiwanese buy-rated stocks to play the AI theme: Lite-on Technology Consumer electronics company Lite-on Tech — which manufactures semiconductors, LEDs and optical disc drives — is among the stocks on BofA's watch. Its optimism on the stock follows "rising AI server demand, Lite-On Tech's increasing sales mix from better-margin optoelectronics and cloud/AIoT business, solid balance sheet, ongoing margin expansion after business restructuring and consistently high cash dividend payout (over 70% since 2011)," the analysts explained. Over the last 12 months, shares in Lite-on Tech are up around 86%. The investment bank has a buy rating on the stock at a price target of 155 New Taiwan dollars — giving it around 35% upside potential. Quanta Computer This manufacturer of notebook computers and electronic hardware is described as a "key beneficiary from rising AI applications" by BofA. The bank likes its its superior product mix and "continuous delivery" in the server and EV business. Shares in Quanta Computer are up over 200% over the last year, and BofA expects them to rise another 40% over the next 12 months. Wistron Electronics manufacturer Wistron also made BofA's list, on the back of its double-digit sales and the compound annual growth rate of its earnings per share between 2023 and 2025. Over the last year, shares in Wistron are up over 220%. BofA expects its share price to reach 130 New Taiwan dollars in the next 12 months, giving it close to 40% potential upside. — CNBC's Michael Bloom contributed to this report.