MW Three AI stocks to play if you want to look past the Nvidia hardware build-out
By Philip van Doorn
Nicole Kornitzer manages the Buffalo International Fund. She expects these companies to make their corporate clients more effective and efficient as they implement AI.
Investor excitement over generative artificial intelligence continues to center on the installation of graphics-processing units (GPU) and related equipment by data centers, which support their corporate clients' efforts to develop the new technology. Nvidia Corp. $(NVDA)$ continues to dominate that market. But a long-term investor might be well served to think about what companies will actually do with the technology.
Nicole Kornitzer has been the portfolio manager for the Buffalo International Fund BUFIX since 2009. She is based in Paris, although Kornitzer Capital Management, which manages the Buffalo Funds, is based in Mission, Kan. Kornitzer Capital Management has about $7 billion in assets under management through mutual funds and for institutional and private clients. The firm was founded by John Kornitzer, Nicole's father, in 1989.
The Buffalo International Fund has about $915 million in assets under management. It has a four-star rating (the second-highest rating) within Morningstar's "Foreign Large Growth" category. Although the fund is in that category, Kornitzer's strategy encompasses companies of various sizes. The portfolio is focused on developed markets outside the U.S., with about 10% exposure to emerging markets.
Kornitzer highlighted to MarketWatch three companies held by the fund that provide consulting, systems or related services to companies to make use of generative AI.
Capgemini SE (FR:CAP) is based in France and was described by Kornitzer as "a global consulting company that competes with Accenture PLC $(ACN)$." The company offers various services to help other companies across developed markets to implement new technology to improve or design new work processes, services and products.
According to Kornitzer, about 20% of Capgemini's business takes place in its home country. "Some French companies have delayed investment through the uncertainty. As the political situation becomes more clear, the companies should be more ready to invest," she said.
When asked whether or not she liked Capgemini's valuation now, Kornitzer said yes, because the stock has been trading at historically low multiples. The stock trades at a forward price-to-earnings ratio of 13.3, based on the consensus earnings-per-share estimate for the next 12 months among analysts polled by FactSet. Over the past five years, Capgemini's average forward P/E valuation has been 16.2.
Another company at the fore of the corporate AI trend is SAP SE (SAP) of Germany, which provides enterprise-resource planning software. "Their customers are migrating from licenses to cloud. They now have 80% recurring revenue - a stable business at this point, with improving margins and increasing free-cash flow," Kornitzer said.
She said SAP is in "a sweet spot" as it adds "AI agents" to its main software platform. SAP is also improving its efficiency through the use of AI, with further upside to its profit margins, she said.
Another company involved with AI implementation that Kornitzer is holding in the Buffalo International Fund is BayCurrent Inc. (JP:6532), which she called "a pure play" on the AI trend in Japan, where "digitization is underpenetrated."
"Normalization of data is the backbone to using AI. You need to have your data in standardized digital form. Japan is still on the pathway of going through the digital transformation," she said.
Digging deeper, Kornitzer said BayCurrent was transforming into a less-cyclical business with longer-term service contracts.
Here is a summary showing forward P/E ratios and projected compound annual growth rates for revenue and earnings per share, based on consensus estimates among analysts polled by FactSet, for the three companies.
Company Ticker Forward P/E Two-year estimated sales CAGR through 2026 Two-year estimated EPS CAGR through 2026 Capgemini SE FR:CAP 13.2 2.9% 4.4% SAP SE XE:SAP 42.2 12.3% 29.0% BayCurrent Inc. JP:6532 25.9 23.0% 23.8% Source: FactSet
With the lowest expectations for revenue and EPS growth, it isn't surprising that Capgemini trades at the lowest forward P/E of the three. SAP is the most expensive, "trading at pretty high multiples, similar to U.S. peers," Kornitzer said. But its two-year projected EPS CAGR is very high. By comparison, projected EPS growth rates from 2024 through 2026 are 3.4% for the STOXX Europe 600 (FXXP00) and 5.8% for the S&P 500 SPX.
Consensus estimates aren't available from FactSet for the FTSE All-World x U.S. Index, which is the Buffalo International Fund's benchmark. But for the Vanguard FTSE All-World ex-U. S. Index ETF VEU, the projected EPS CAGR through 2026 is 4.7%.
So the valuations indicate that investors get what they pay for, although BayCurrent may seem to be a relative bargain based on the growth projections.
More attractive valuations in Europe
Mark Hulbert recently stressed how important it is for U.S. investors to add exposure to European stocks. This can provide some diversification from the highly concentrated S&P 500. And after years of underperforming the U.S., European stocks are outperforming this year, and are still trading at much lower P/E valuations.
"Valuation is a major theme," Kornitzer said about European stocks. "There are many companies doing just as well as U.S. peers but trading at cheaper multiples. Some of that may be justified because of higher taxes in Europe or less margin expansion opportunities because the U.S. has lower costs."
She stressed that large European companies have international business models. Many large publicly traded companies in France and Germany have relatively little exposure to their home countries.
"So when you buy a fund for European exposure, you are not just buying Europe. You are buying global businesses, some of which make a lot of money in the U.S.," she said.
Kornitzer also said there was potential for improving consumer confidence in Europe to help unlock "a ton of household savings." The results of the German elections could lead to policies that are "more pro-growth and pro-investment," and the ability of France's government to be "on track to have a budget," may also improve consumer and business confidence, she said.
Another catalyst could be provided for European companies "if we see a bottoming in China," Kornitzer said. For example, she said that Siemens AG (XE:SIE) (one of the Buffalo International Fund's holdings) reported an increase in automation equipment orders in China. "That would suggest their automation business can improve this year for upside to estimates," she said.
Consensus estimates for earnings per share provide the denominator of a stock's forward price-to-earnings ratio. Investors always hope to see a continuing increase in rolling 12-month EPS estimates to support rising stock prices over the long term.
Top holdings
Here are the top 10 holdings (out of 82) of the Buffalo International Fund as of Dec. 31:
Company Ticker Country % of Buffalo International Fund Taiwan Semiconductor Manufacturing Co. ADR TSM Taiwan 3.4% Schneider Electric SE FR:SU France 2.6% SAP SE XE:SAP Germany 2.4% BayCurrent Inc. JP:6532 Japan 2.3% MercadoLibre Inc. MELI Uruguay 2.3% GFL Environmental Inc. CA:GFL Canada 2.3% Lonza Group AG CH:LONN Switzerland 2.2% Adyen NV NL:ADYEN Netherlands 2.1% Kerry Group PLC Class A IE:KRZ Ireland 1.9% Constellation Software Inc. CA:CSU Canada 1.9% Source: Buffalo Funds
Click on the tickers for more about each company, fund or index.
Read: Tomi Kilgore's guide to the wealth of information available on the MarketWatch quote page
Long-term performance
The Buffalo International Fund's Investor share class has annual expenses of 1.05% of assets under management. The fund's Institutional share class BUIIX has a 0.90% expense ratio.
Here is how the two share classes have performed, after expenses, against its benchmark, the FTSE All World ex-U.S. Index (in U.S. dollars), and its Morningstar category. Returns are through Feb. 28 and include reinvested dividends.
Fund, index or category 2025 Return 12-month return 3-year average 5-year average 10-year average 15-year average Buffalo International Fund - Investor 8.0% 3.0% 3.8% 8.3% 7.3% 7.7% Buffalo International Fund - Institutional 8.1% 3.2% 3.9% 8.5% N/A N/A FTSE All-World ex U.S. Index 5.0% 10.1% 5.1% 8.2% 5.5% 6.0% Morningstar Foreign Large Growth category 6.0% 7.0% 3.3% 6.8% 5.6% 6.6%
MW Three AI stocks to play if you want to look past the Nvidia hardware build-out
By Philip van Doorn
Nicole Kornitzer manages the Buffalo International Fund. She expects these companies to make their corporate clients more effective and efficient as they implement AI.
Investor excitement over generative artificial intelligence continues to center on the installation of graphics-processing units (GPU) and related equipment by data centers, which support their corporate clients' efforts to develop the new technology. Nvidia Corp. (NVDA) continues to dominate that market. But a long-term investor might be well served to think about what companies will actually do with the technology.
Nicole Kornitzer has been the portfolio manager for the Buffalo International Fund BUFIX since 2009. She is based in Paris, although Kornitzer Capital Management, which manages the Buffalo Funds, is based in Mission, Kan. Kornitzer Capital Management has about $7 billion in assets under management through mutual funds and for institutional and private clients. The firm was founded by John Kornitzer, Nicole's father, in 1989.
The Buffalo International Fund has about $915 million in assets under management. It has a four-star rating (the second-highest rating) within Morningstar's "Foreign Large Growth" category. Although the fund is in that category, Kornitzer's strategy encompasses companies of various sizes. The portfolio is focused on developed markets outside the U.S., with about 10% exposure to emerging markets.
Kornitzer highlighted to MarketWatch three companies held by the fund that provide consulting, systems or related services to companies to make use of generative AI.
Capgemini SE (FR:CAP) is based in France and was described by Kornitzer as "a global consulting company that competes with Accenture PLC (ACN)." The company offers various services to help other companies across developed markets to implement new technology to improve or design new work processes, services and products.
According to Kornitzer, about 20% of Capgemini's business takes place in its home country. "Some French companies have delayed investment through the uncertainty. As the political situation becomes more clear, the companies should be more ready to invest," she said.
When asked whether or not she liked Capgemini's valuation now, Kornitzer said yes, because the stock has been trading at historically low multiples. The stock trades at a forward price-to-earnings ratio of 13.3, based on the consensus earnings-per-share estimate for the next 12 months among analysts polled by FactSet. Over the past five years, Capgemini's average forward P/E valuation has been 16.2.
Another company at the fore of the corporate AI trend is SAP SE (SAP) of Germany, which provides enterprise-resource planning software. "Their customers are migrating from licenses to cloud. They now have 80% recurring revenue - a stable business at this point, with improving margins and increasing free-cash flow," Kornitzer said.
She said SAP is in "a sweet spot" as it adds "AI agents" to its main software platform. SAP is also improving its efficiency through the use of AI, with further upside to its profit margins, she said.
Another company involved with AI implementation that Kornitzer is holding in the Buffalo International Fund is BayCurrent Inc. (JP:6532), which she called "a pure play" on the AI trend in Japan, where "digitization is underpenetrated."
"Normalization of data is the backbone to using AI. You need to have your data in standardized digital form. Japan is still on the pathway of going through the digital transformation," she said.
Digging deeper, Kornitzer said BayCurrent was transforming into a less-cyclical business with longer-term service contracts.
Here is a summary showing forward P/E ratios and projected compound annual growth rates for revenue and earnings per share, based on consensus estimates among analysts polled by FactSet, for the three companies.
Company Ticker Forward P/E Two-year estimated sales CAGR through 2026 Two-year estimated EPS CAGR through 2026
Capgemini SE FR:CAP 13.2 2.9% 4.4%
SAP SE XE:SAP 42.2 12.3% 29.0%
BayCurrent Inc. JP:6532 25.9 23.0% 23.8%
Source: FactSet
With the lowest expectations for revenue and EPS growth, it isn't surprising that Capgemini trades at the lowest forward P/E of the three. SAP is the most expensive, "trading at pretty high multiples, similar to U.S. peers," Kornitzer said. But its two-year projected EPS CAGR is very high. By comparison, projected EPS growth rates from 2024 through 2026 are 3.4% for the STOXX Europe 600 (FXXP00) and 5.8% for the S&P 500 SPX.
Consensus estimates aren't available from FactSet for the FTSE All-World x U.S. Index, which is the Buffalo International Fund's benchmark. But for the Vanguard FTSE All-World ex-U. S. Index ETF VEU, the projected EPS CAGR through 2026 is 4.7%.
So the valuations indicate that investors get what they pay for, although BayCurrent may seem to be a relative bargain based on the growth projections.
More attractive valuations in Europe
Mark Hulbert recently stressed how important it is for U.S. investors to add exposure to European stocks. This can provide some diversification from the highly concentrated S&P 500. And after years of underperforming the U.S., European stocks are outperforming this year, and are still trading at much lower P/E valuations.
"Valuation is a major theme," Kornitzer said about European stocks. "There are many companies doing just as well as U.S. peers but trading at cheaper multiples. Some of that may be justified because of higher taxes in Europe or less margin expansion opportunities because the U.S. has lower costs."
She stressed that large European companies have international business models. Many large publicly traded companies in France and Germany have relatively little exposure to their home countries.
"So when you buy a fund for European exposure, you are not just buying Europe. You are buying global businesses, some of which make a lot of money in the U.S.," she said.
Kornitzer also said there was potential for improving consumer confidence in Europe to help unlock "a ton of household savings." The results of the German elections could lead to policies that are "more pro-growth and pro-investment," and the ability of France's government to be "on track to have a budget," may also improve consumer and business confidence, she said.
Another catalyst could be provided for European companies "if we see a bottoming in China," Kornitzer said. For example, she said that Siemens AG (XE:SIE) (one of the Buffalo International Fund's holdings) reported an increase in automation equipment orders in China. "That would suggest their automation business can improve this year for upside to estimates," she said.
Consensus estimates for earnings per share provide the denominator of a stock's forward price-to-earnings ratio. Investors always hope to see a continuing increase in rolling 12-month EPS estimates to support rising stock prices over the long term.
Top holdings
Here are the top 10 holdings (out of 82) of the Buffalo International Fund as of Dec. 31:
Company Ticker Country % of Buffalo International Fund Taiwan Semiconductor Manufacturing Co. ADR TSM Taiwan 3.4% Schneider Electric SE FR:SU France 2.6% SAP SE XE:SAP Germany 2.4% BayCurrent Inc. JP:6532 Japan 2.3% MercadoLibre Inc. MELI Uruguay 2.3% GFL Environmental Inc. CA:GFL Canada 2.3% Lonza Group AG CH:LONN Switzerland 2.2% Adyen NV NL:ADYEN Netherlands 2.1% Kerry Group PLC Class A IE:KRZ Ireland 1.9% Constellation Software Inc. CA:CSU Canada 1.9% Source: Buffalo Funds
Click on the tickers for more about each company, fund or index.
Read: Tomi Kilgore's guide to the wealth of information available on the MarketWatch quote page
Long-term performance
The Buffalo International Fund's Investor share class has annual expenses of 1.05% of assets under management. The fund's Institutional share class BUIIX has a 0.90% expense ratio.
Here is how the two share classes have performed, after expenses, against its benchmark, the FTSE All World ex-U.S. Index (in U.S. dollars), and its Morningstar category. Returns are through Feb. 28 and include reinvested dividends.
Fund, index or category 2025 Return 12-month return 3-year average 5-year average 10-year average 15-year average Buffalo International Fund - Investor 8.0% 3.0% 3.8% 8.3% 7.3% 7.7% Buffalo International Fund - Institutional 8.1% 3.2% 3.9% 8.5% N/A N/A FTSE All-World ex U.S. Index 5.0% 10.1% 5.1% 8.2% 5.5% 6.0% Morningstar Foreign Large Growth category 6.0% 7.0% 3.3% 6.8% 5.6% 6.6%
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March 03, 2025 08:47 ET (13:47 GMT)
MW Three AI stocks to play if you want to look -2-
Sources: FactSet, Morningstar
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