5 Cheap Ways to Ride The AI Supercycle to Profits

Key Points

• The AI revolution is accelerating the Industrial Revolution 4.0, and these stocks are well-positioned. 
• Electronics manufacturers use AI to improve their clients' outcomes while clients work to embed new technology into their products. 
• Most electronics manufacturers trade at low price multiples while delivering solid and sustained growth. 

The AI revolution is upon us, and few sectors are better positioned to profit from it than the electronics manufacturing industry. These companies are already leaning hard into AI to improve their operations, increase productivity, and deliver returns for investors, and their clients are doing the same. 

This means a way to invest in the practical application of AI and computer vision now and long into the future. Every significant advancement in AI will lead to a new product upgrade cycle that will include PCs, mobile devices, and billions of Internet of Things (IoT) devices with chips embedded into them. That means sustained business for electronics manufacturing services companies. 

JBL: The Leader In Electronics Manufacturing Services 

Jabil NYSE: JBL is the leader in electronics manufacturing and trades with the largest market cap, about $13.75 billion, at the end of September. This company recently made headlines with the divestiture of its mobility business. The mobility business was sold to BYD for $2.2 billion in cash, a double tailwind. JBL reduced its footprint in China while increasing its cash position. Cash will fund capital returns through share repurchases and business investments. JBL trades at roughly 12X its earnings outlook 

JBL's new business investments will include technological advances and processes centered on the 4th Industrial Revolution. That revolution centers on AI, robotics, and automation and how they can increase productivity, efficiency, precision, and scale for it and its clients. 

Electric vehicles (EVs), healthcare, and cloud are JBL's largest end markets, but it provides services across industries and verticals. The last earnings report included low-single-digit growth, outperformance, and favorable guidance. The analysts have been raising their Q3 EPS and stock price targets ever since. They rate the stock at Buy and see it gaining 15% to 30%. 

Flex Ltd. Is Another Undervalued AI Stock 

Flex Ltd. NASDAQ: FLEX trades at a very low 10x its earnings outlook while growing above consensus estimates. This is only slightly cheaper than JBL, which is also growing and repurchasing shares. Flex Ltd is also leaning into AI and machine learning to optimize its processes, including IoT and automation. 

Flex Ltd is valued at roughly $11.25 billion and is expected to grow revenue by single digits in fiscal year (FY) 2024 and double digits in 2025. Analysts rate this stock at Buy and see it increasing about 25% at the consensus mid-point, which is trending higher. Flex Ltd. also gives investors exposure to the solar market. Its subsidiary Nextracker NASDAQ: NXT makes a next-gen solar panel mounting platform with a solar-tracking management platform. 

Fabrinet for Computer Vision

Fabrinet's NASDAQ: FN manufacturing processes and products are centered on optical components and sensors, making it a play on computer vision. Its services run from wafer handling to finished products and are in demand. The latest results include double-digit growth, expected to sustain into the next fiscal year, and widening margins. 

Analysts rate this stock at Moderate Buy with a price target below the current price. The pertinent detail is that the consensus is trending higher and lagging the market despite the most recent targets. Northland Securities set the most recent target and sees this stock advancing 25% to $200. Regarding value, Fabrinet is the most highly valued stock on this list, trading at 19x this year's earnings and 17x next.

Sanmina: Accelerating Time To Market 

Sanmina Corporation NASDAQ: SANM is a smaller, diversified manufacturer using IR 4.0 technology to accelerate time-to-market for its clients. The company's services include design-to-production capabilities and trade for a low 8.2x earnings. The company's latest report was mixed, relative to the analysts' estimates, but included near-10% top-line growth and better-than-expected margin. Analysts rate it at Buy and see its share price increasing by 40%. 

Celestica Grows with the Cloud 

Celestica NYSE: CLS operates in 2 segments: Advanced Technology and Connectivity & Cloud. Its results include double-digit growth and outperformance that have analysts raising targets. They rate the stock a Moderate Buy and view it as fairly valued at current price levels. The most recent activity is a double upgrade to Outperform from RBC. Trading at 10x its earnings, it is a value stock with double-digit growth expected next year.