Markets could be gearing up for quite the volatile summer, and it’s not all about artificial intelligence (AI), chip stocks, or hyperscaler plays. With frontier AI initial public offerings still on the horizon, there’s a sense of excitement about the future of AI and the many problems it could solve.
Just because the tech is real and the potential applications do not mean that a boom, especially in the semiconductor space, is going to last forever.
At the end of the day, you could have the strongest, fiercest tailwinds in the world, or a once-in-a-generation kind of technological boom, and still stand to lose money if you overpay for a stock, even if it’s one of the biggest forces that’s in the right spot at the right time. Indeed, the DRAM (dynamic random access memory) scene has been absolutely meteoric of late.
Source: Getty Images
You don’t have to bet on AI chips to benefit from the great tailwind
And while there is absolutely no question that demand could overwhelm supply for some years longer, even as some of the market players catch up on production, the share prices might have run just a little bit ahead of their skis.
It’s hard to tell based on traditional valuation metrics alone, but given how much of the hype is already priced in and the great uncertainty that comes with timing cycles, I’d not look to go long or short. Sometimes, if a move is too complex to digest and you struggle to value companies, it makes the most sense to just not play.
Indeed, there are more certain, predictable earnings growers on the market right now, and while they won’t build generational wealth over a near-term timespan, they can help you do well over the long run. If you can settle for doing well, I think the dividend payers are looking quite attractive, especially the names on this side of the border.
TC Energy
Shares of TC Energy (TSX: TRP), at least in my opinion, look like an underrated, further-down-the-stream kind of beneficiary from AI.
Indeed, transporting natural gas is big business, and demand to help fuel those data centres is on its way up. Would you know it from looking at shares of TRP as they stand today? Probably not. Shares look fairly priced, maybe even a bit undervalued, given demand for its services and the growth projects in the pipeline (forgive the pun) in the next three years.
Of course, energy has been targeted as a sector enjoying AI tailwinds already. But, in the case of TC Energy, I think there’s still a price discrepancy, given the wide moat in its physical asset presence. In other words, it’s in the right place at the right time, and as more data centres look to natural gas before those longer-term nuclear projects go online, I find the grid to be a stellar, lower-risk way to play the boom.
With a nice 3.66% dividend yield (I know, it’s gone down a lot in the past year, thanks to the melt-up in shares) and the $100 billion market cap milestone up ahead, I’d not be afraid to think about a long-term position, even at 28.3 times trailing price to earnings (P/E), a considerable historic premium for TC.
