14/04/2024
This FTSE 100 stock could be a major beneficiary of the AI boom
This FTSE 100 company is likely to play a major role in the development of semiconductor manufacturing facilities over the next decade.
This means that demand for high-power AI chips is likely to rise significantly in the years ahead.
Now, one way to play this theme is to invest in chip companies like Nvidia (which I’ve already done).
Another way, however, is to invest in companies that are helping chip manufacturers like Taiwan Semiconductor and Samsung build new manufacturing plants to meet the high level of demand.
This is where FTSE 100 company Ashtead (LSE: AHT) comes in.
A picks-and-shovels play
Ashtead is one of the world’s largest construction equipment rental companies.
Operating in the US, Canada, and the UK, it has more than a million rental assets on its books – equipment that can be used to lift, power, move, dig, drill, support, scrub, pump, and more.
What I like about it from an investment point of view is that it generates most of its revenues in the US today.
This means that it’s really well positioned to capitalise on the chip manufacturing boom, as the US government is spending billions to ramp up manufacturing in the country.
Ultimately, it’s a ‘picks-and-shovels’ play on the AI theme (quite literally).
The share price is rising
I think investors are already starting to catch on.
In the last month, Ashtead’s share price has risen about 14%.
This could be related to the fact that Taiwan Semiconductor was just awarded $6.6bn from the US government to expand production at a chip manufacturing plant it is building in Arizona.
Or, it could be related to the fact that Samsung is set to receive over $6bn in US chip subsidies to expand its chip manufacturing facilities in Texas.
I believe there’s plenty more to come from this stock, however.
Year to date, shares in US rival United Rentals are up about 20%. Yet Ashtead shares are only up about 6%. So, I reckon there’s some catching up to do.
As for the P/E ratio, it’s a little under 18, which is not particularly high.
It’s worth noting that earlier this year, analysts at JP Morgan raised their price target for Ashtead to 6,800p. That’s about 18% above the current share price.
New all-time highs on the way?
Now, I have to point out that Ashtead operates in a cyclical industry.
So while there’s a long-term growth story here, we could see industry turbulence in the short term, especially if economic conditions weaken.
I’m pretty excited by the potential, however.
Given the backdrop, I think it’s only a matter of time until Ashtead shares soar to new all-time highs.
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