Top ‘Phase 2’ AI infrastructure stocks that are still high-conviction

Investors continue to have high convictions in stocks that are continuing to spend in artificial intelligence and its related infrastructure.

Goldman Sachs said there are four phases of AI implementation, starting with Nvidia (NVDA), followed by infrastructure, then enabled revenues, and productivity as the fourth. The typical “phase two” AI infrastructure stock is up 27% year-to-date.

Analysts said they expect these stocks’ prices to growth due to earnings growth rather than valuation expansion.

In addition, starting valuations for these stocks are above average while Nvidia’s (NVDA) sale surprises, its hyper-scaler capex spending, and corporate AI mentions have slowed.

The “phase two” stocks include those in semiconductors, cloud providers, data center REITs, hardware and equipment, security software, and utilities. It also includes the mega-caps – Amazon (AMZN), Alphabet (GOOGL), Meta (META), Microsoft (MSFT), and Oracle (ORCL) — which have announced capex investments in AI north of $215B in 2024 and $250B in 2025.

“While many factors besides AI affect near-term fundamentals, Phase 2 share prices have rallied beyond forward EPS expectations and suggest incremental investor optimism about the potential boost from AI,” said Ryan Hammond, vice president of Goldman Sachs U.S. Equity Strategy, in a note.

However, future returns could be constrained by elevated starting valuations, he added. Currently, valuations for the “phase two” stocks are above average. Compared to the S&P 500 (SP500), these stocks trade 0.4 standard deviations more expensive relative to the past 10 years.

So, while these stocks seem more expensive, “it is possible that the demand for AI leads the mega-cap tech stocks to spend even more on AI-related capex than investors and analysts currently expect,” said Hammond.

These are the top “phase two” stocks, ranked by year-to-date return:

• Vistra Corp. (VST) – YTD return: 235%
• Palantir Technologies Inc. (PLTR) – YTD return: 141%
• Constellation Energy Corporation (CEG) – YTD return: 140%
• Coherent Corp. (COHR) – YTD return: 125%
• Vertiv Holdings Co. (VRT) – YTD return: 123%
• ARM Holdings PLC (ARM) – YTD return: 91%
• NRG Energy, Inc. (NRG) – YTD return: 84%
• Credo Technology Group Holding Ltd. (CRDO) – YTD return: 73%
• Arista Networks, Inc. (ANET) – YTD return: 70%
• Oracle Corporation (ORCL) – YTD return: 67%
• Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) – YTD return: 64%
• Broadcom Inc. (AVGO) – YTD return: 64%
• Super Micro Computer, Inc. (SMCI) – YTD return: 60%
• Belden Inc. (BDC) – YTD return: 53%
• Public Service Enterprise Group Inc. (PEG) – YTD return: 53%
• Corning Inc. (GLW) – YTD return: 50%
• Pure Storage, Inc. (PSTG) – YTD return: 47%
• Monolithic Power Systems, Inc. (MPWR) – YTD return: 47%
• NetApp, Inc. (NTAP) – YTD return: 46%
• Onto Innovation, Inc. (ONTO) – YTD return: 37%