Key takeouts
- The trend of migrating to AI and cloud infrastructure is significant for technology stocks.
- For utility stocks, upgrading infrastructure and supply chain efficiency is crucial.
- The defense sector’s future hinges on global military spending and maintaining current inventories.
The stock investment landscape is currently influenced by an AI boom that’s affecting sectors beyond just technology, along with various geopolitical tensions.
During the Morningstar Investment Conference on Thursday, Senior Equity Analyst Dan Romanoff, strategist Travis Miller, and equity analyst Nicholas Owens shared insights on the prevailing trends in technology, utilities, and defense. They discussed which stocks could thrive as these trends evolve over the coming years.
Technology
Romanoff emphasized that AI remains a key driver in technology. “It’s a force fostering growth everywhere right now, and as more people adopt it, I think we’ll see acceleration in the next couple of years,” he remarked.
He also noted an ongoing shift from on-premises data systems to cloud delivery. “Investors appreciate the cash margins and stability that come with this transition,” he pointed out. Romanoff identified two stocks that stand out due to their competitive edge.
Amazon
“They’re the frontrunners in the public cloud space. It’s been 15 years since AWS introduced AI and machine learning services. So, while generative AI is relatively new for them, they’ve already gained from it significantly.”
Microsoft
“They’ve transitioned their business model to subscriptions. Together with Azure, they’re the second-largest cloud provider after AWS, which has allowed them to benefit disproportionately thanks to established enterprise relationships.”
Utilities
Miller pointed out the substantial gap between energy demand and supply. “It’s not just about the sheer volume of demand; it’s also about the stark contrast between power generation and consumption,” he noted. He mentioned two stocks well-versed in infrastructure development and supply chain optimization that are poised to address this gap.
Edison International
“There’s a lot of infrastructure to build. Edison is planning to invest $8 billion annually over the next decade.”
Eversource Energy
“As the largest utility in the Northeast—covering Connecticut, Massachusetts, and New Hampshire—they focus on infrastructure, particularly interstate transmission and various clean energy projects.”
Defense
Owens highlighted how the defense industry operates differently from other market sectors. “Military spending drives this industry, which is often a response to global geopolitical risks. The U.S. and, increasingly, European defense budgets are on the rise.” He pointed out two undervalued stocks he believes are aligned with these geopolitical dynamics.
Huntington Ingalls Industries
General Dynamics
“Huntington operates as a sort of monopoly in shipbuilding. General Dynamics also plays a significant role in the same field. Both companies collaborate on producing nuclear submarines and destroyers.”
