On the June 22 episode of The Morning Filter podcast, host Susan Dziubinski is joined by Morningstar senior technology stock analyst William Kerwin at the Morningstar Investment Conference to analyze Apple stock AAPL, market cycles, and discuss a few of Kerwin’s artificial intelligence stock picks. Here’s an excerpt from the episode.
Susan Dziubinski: The third pick is Amphenol APH. Now, this was one of Dave’s picks about a month ago; he talked about on the episode of The Morning Filter, how Amphenol was one of the few commodity-oriented tech hardware stocks that still looked undervalued at the time. Morningstar’s fair value estimate on the stock is $190. So, what’s the pitch?
Will Kerwin: I would push back on Dave calling it a commodity. We actually see that this tech is pretty differentiated, and that’s why it has a wide moat, actually. We’re going to go to another derivative of the AI play. We went from kind of the compute chips with Broadcom AVGO, the connectivity of those chips with Arista ANET, and now these are kind of individual components that feed into that connectivity that Arista is doing. If you think of Arista selling effectively a box that includes a semiconductor and a lot of equipment within that and surrounding that, what Amphenol does best is every point you have connectivity within there, whether it’s an electrical wire, whether it’s a fiber-optic cable, or whether it’s even just power going into a chip or one of these boxes, they’re at those connection points. Those are in play for them. They’re the best at what they do, specifically in these data center applications.
You’re going to sense a familiar theme. They are growing like crazy. They’re doing extremely well in AI infrastructure in the data center, and yet, there’s a bear narrative in the market that has led the stock to flag a little bit. That’s really centered around this optics discussion as well, which I said with Arista, where the market has come to view that Amphenol is worse off in a world that has more fiber-optic content than in a world that has more copper content. And we don’t agree. We think that Amphenol has actually been upgrading its optics portfolio. We think it is way better positioned than the stock would seem to imply, trading at these levels. Again, best of breed, extremely high-quality company, and the results really speak for themselves. It is growing phenomenally. The profit margins are expanding. I sometimes speak too effusively about this company. I think Amphenol is just really a blue-chip stock and rarely cheap, but we think it’s a great entry point today.
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