Goldman warns these are the most crowded AI-related stocks

Published Wed, Feb 7 20241:39 PM ESTUpdated Wed, Feb 7 20242:06 PM EST

These stocks riding the surge of interest in artificial intelligence are the most crowded trades, Goldman Sachs warned. The enthusiasm around AI has run up the prices for some stocks so high that investors are worried they are becoming overcrowded. That increases the volatility and risk of a sharp drawdown if traders no longer believe in a stock's thesis. Determining overcrowded trades in the case of AI is an especially difficult endeavor, read a Wednesday note from the firm's derivatives research team, as "the more far-reaching the technological innovation, the longer high valuations can persist as adoption is continuously underestimated." But the Wall Street firm used a variety of measures to identify companies including a look at options, retail trading and short interest; stock price performance compared against earnings revisions; as well as upside to the firm's internal price target. Options crowding refers to the percentile rank of put-call volume in history compared to the past year. Here are some of them. The top five most crowded trades include Autodesk, a design software company; Arista Networks, a network equipment company; and Advanced Micro Devices, a chipmaker. Autodesk is considered the most crowded trade, according to Goldman Sachs. Shares are higher by 5% this year, but the Wall Street firm expects shares could fall 29%, as of Tuesday. Arista Networks is considered the third-most crowded stock. In January, the network equipment company was added to JPMorgan's analyst focus list. Analyst Samik Chatterjee cited Arista's investments into AI and data centers, saying it could drive a "multi-year acceleration in growth." Arista shares are up more than 13% in 2024. But Goldman Sachs does not anticipate much runway left for the stock, just 3% upside to its price target. CrowdStrike was a cybersecurity name that made it onto the list. Last month, Morgan Stanley upgraded the stock to overweight from equal weight, saying it's "firing on all cylinders" as demand improves. The stock is up 23% in 2024, but can fall 27% based on Goldman Sachs' price target. Vertiv and Advanced Micro Devices round out the top five.