Goldman Sachs' AI List: Coherent Corp. and the AI Superstars in Focus

The stocks of American technology corporations have experienced a remarkable upswing this year. The reason for this is the growing enthusiasm for generative artificial intelligence (AI). However, according to recent research by the investment bank Goldman Sachs, this does not imply the emergence of a financial bubble, as has often been the case in the past. Instead, investors can expect solid returns, generated not only by the well-known giants but also by smaller tech companies and AI stars outside the technology sector. Nevertheless, Peter Oppenheimer, head of global equity strategy at the bank, recommends portfolio diversification for risk management. Despite the dominance of technology stocks, which have accounted for 32% of global and 40% of US stock returns since 2010, these returns are shown to be based on strong financial fundamentals and not on speculative bubbles. Earnings per share in the technology sector have quadrupled since the 2008 financial crisis, compared to a modest increase of 25% in other sectors. A small group of mega-companies, particularly in the software and cloud computing market, which benefit from substantial resources and high profitability, have been the main drivers of these impressive developments. This concentration of market values reflects historical patterns of technological innovation, Oppenheimer notes. As with previous developments, from the construction of canals to the introduction of the telephone, new technologies attract significant capital and competition. This does not always lead to financial bubbles, but often results in a decline in prices, followed by market consolidation. In the long term, a few large companies dominate, while growth transitions to subsequent innovations that build on the original technology. The AI era is particularly noteworthy because the leading companies in AI were also at the forefront of the previous technology wave. These giants can easily manage the high investment costs in AI. Nevertheless, new competitors are emerging. The number of AI patents rose to over 60,000 in 2022, indicative of a typical pattern of capital growth and competition. Companies introducing new technologies are not necessarily the ones that will derive the greatest value from them in the long term. The dot-com bubble showed that social media and ride services optimally utilized the internet infrastructure, achieving the greatest success. Accordingly, new companies in the emerging AI era could become the future superstars. Coherent Corp. has emerged as a significant player in the AI sector, particularly with its 800G transceiver technology, which reads and writes data at a speed of 800 gigabytes per second. The new CEO, Jim Anderson, is advancing a platform optimization program intended to transform the company's long-term financial model. The recent increase in earnings confirms the promising outlook of the company, which is supported by AI trends. Despite these positive developments, Coherent Corp. ranks 28th among AI superstars at Goldman Sachs, with some investors seeing more potential in other AI stocks.