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Investors should look to stocks that enhance productivity as companies seek to replace scarce labor with machines, according to Evercore ISI. Analyst Julian Emanuel worked with colleagues to find stocks that are best suited to benefit from the growing corporate appetite for automation, particularly from artificial intelligence. Specifically, Emanuel looked for stocks that fall into one of four use cases: enhancing or integrating AI into workflows, enabling technology, improving security or aiding industrial automation. “Absent comprehensive immigration reform, or materially improving women’s labor force participation rate, investing in productivity will be critical to buffer corporate margins against rising cost pressures from the combined effects of slowing population growth, aging, lower labor force participation rates and increasing age old dependencies,” he said in a note to clients. The chart below includes two stocks Emanuel found for each use case. CNBC Pro also included year-to-date performance and Evercore ISI’s anticipated upside for each stock based on 12-month price targets. Amazon is considered an AI integrator or enhancer, meaning it can bring the technology into its workflow or use it to improve product offerings or productivity. For Amazon, that comes from using AI to improve retail personalization, targeting capabilities and advertising. It could also help the cloud business increase market share. The stock has surged more than 50% since the start of 2023, rebounding along with other technology stocks after 2022’s sell-off. Evercore’s price target implies shares could rally another 16% in the next 12 months. There’s also the tech enablers, which “form the backbone of increasing AI uptake” through providing the necessary chips, infrastructure and networks for expanded use. One example is Equinix , whose data centers specialize in interconnection and will be increasingly important as AI workloads transition to inferencing. Equinix shares have risen nearly 17% year to date and Evercore ISI expects shares to advance another 8.5%. Zscaler , meanwhile, is a play on cybersecurity, an area Emanuel said will be increasingly important as data use grows. He called the stock “a true disruptor in next-gen cloud security.” “As one of the few beneficiaries monetizing hybrid work, ZS has a unique tech advantage that not only elevates a firm’s security posture but creates a more attractive ROI vs. legacy network architectures,” he said. Shares have rallied more than 29% so far in 2023, and Evercore’s $170 price target implies another 17.5% upside ahead from where the stock finished Tuesday. Ingersoll Rand , the world’s second-largest manufacturer of industrial compressors, will help improve automation in industries including manufacturing. The stock should also be helped by reshoring trends, as well as its investments in AI and improving labor productivity, Emanuel said. The stock has gained more than 22% in 2023 and, if Evercore ISI’s target pans out, could advance another 11% from Tuesday’s close. — CNBC’s Michael Bloom contributed to this report.
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