Buy these AI and data center beneficiaries like Nvidia, says BofA

Bank of America highlighted a host of stocks that are worth snapping up — including a few names benefiting from the artificial intelligence and data center revolution. The firm said it likes companies with long-term upside potential. CNBC Pro combed through Bank of America’s research to find the best positioned buy-rated stocks. They include National Grid , Broadcom, Nvidia, Johnson Controls and Dycom Industries. Dycom Industries Analyst Alexander Waters is standing by shares of top pick Dycom. The engineering services company has a slew of positive catalysts in the pipeline, according to the firm. Waters said Dycom is a beneficiary of the government’s Broadband Equity, Access and Deployment Program , which provides $42.45 billion in federal funding to expand access to high-speed internet. The analyst expects this initiative to be a significant revenue driver for Dycom. In addition, the firm said Dycom’s data center opportunity is extremely undervalued. “DY believes it is well positioned to capture new revenue opportunities stemming from emerging AI/data center trends given its longstanding relationships and expertise in laying intercity networks,” Waters wrote. Dycom shares are up more than 60% this year. “Overall, DY remains upbeat regarding its backlog and growth opportunities,” Waters added. Johnson Controls The firm upgraded the multinational industrial conglomerate to buy from neutral earlier this week, saying it’s a key player in the race to build data centers. Data centers are physical facilities that house cloud and other internet infrastructure. The company is expected to have a “leading position” in that growing market, according to analyst Andrew Obin. “JCI is on track to generate ~$4bn from data centers, or ~14% of revenue in FY24E,” he wrote. Obin said data centers are one of the “more profitable verticals,” with Johnson Controls well positioned to be a top thermal provider. Johnson Controls kicked off its search for a new CEO this summer, with current leader George Oliver planning to retire from the post. Obin sees the development as a long-term tailwind for the stock. “Best-in-class data center assets and change is coming,” he said. Shares are up about 25% this year. Broadcom Keep buying shares of the semiconductor giant, analyst Vivek Arya wrote. The company posted fiscal third-quarter results that beat expectations on the top- and bottom-lines earlier this month, bolstering Arya’s bullish thesis for the stock. “We rate Broadcom Buy due to its high-quality diversified exposure to secular product cycles in the smartphone, cloud data center, telecom and enterprise storage markets,” he said. Further, the firm likes the company’s dividend potential and synergies from its completion of the VMware acquisition . The stock is up around 50% this year with plenty more room to run, but Arya cautioned investors to remain calm as the name can be subject to volatility. “High-quality AI franchise with multiple FY25 upside levers,” the analyst added. Dycom Industries “Remains top SMID cap pick with multiple growth avenues. … DY believes it is well positioned to capture new revenue opportunities stemming from emerging AI/data center trends given its longstanding relationships and expertise in laying intercity networks. … Overall, DY remains upbeat regarding its backlog and growth opportunities.” Johnson Controls “Best-in-class data center assets and change is coming. … Leading position in data centers JCI is on track to generate ~$4bn from data centers, or ~14% of revenue in FY24E. JCI’s data center exposure compares to Trane Technologies’ ~4% and Carrier’s ~3%, by our estimate. We believe data centers to be one of the more profitable verticals.” National Grid “Our investment case on National Grid is based on three pillars: (1) significant medium- and long-term capex pipeline in the UK and the US, in particular in electricity, necessitated by the push towards Net Zero, (2) full regulatory visibility in the UK until 2026 / 2028, upside to US returns in 2024, (3) inflation and interest rate hedges embedded in the respective regulatory framework.” Broadcom “High-quality AI franchise with multiple FY25 upside levers. … While inline trends and AI fatigue might keep stock volatile near-term, we would view any weakness as a particularly attractive buying opportunity. … We rate Broadcom Buy due to its high-quality diversified exposure to secular product cycles in the smartphone, cloud data center, telecom and enterprise storage markets.” Nvidia “Reiterate Buy, top sector pick, $165 PO. Near-term NVDA faces several headwinds including: 1) fundamental, 2) regulatory, 3) perceptional and 4) market (weak Sep. seasonality, interest-rate, elections), that could suppress the stock. However, it could also potentially create an enhanced Buy opportunity with the stock ~27x CY25 PE within lowest quartile of valuation in past 5-years.” Read more about this call here.