Although artificial intelligence, or AI, stocks have struggled recently, it's still one of the most exciting technology transformations of the modern era. And while AI stocks could certainly take investors on a bit of a roller-coaster ride in the short term, the space remains an excellent long-term investment opportunity.
There are some AI stocks that are not only trading at a steep discount to their recent highs, thanks to AI spending concerns and economic uncertainty, but that are likely to produce excellent results over the long run, regardless of how the economy does in the coming weeks and months. Here are two that I own in my portfolio and would buy more shares of without hesitation.
You might not think of the real estate sector as a great place to find AI investments, but Digital Realty Trust (DLR -0.14%) is an AI infrastructure play to put on your radar, especially down about 20% from recent highs.
Digital Realty is a real estate investment trust, or REIT, that primarily owns and operates data center properties. The company has more than 300 large-scale data center facilities located in 25 countries around the world, and its customer base includes some of the largest AI players in the industry.
Despite fears about a slowdown in AI infrastructure spending, Digital Realty's recent results look quite strong. In the first quarter, Digital Realty reported 6% year-over-year growth in funds from operations (FFO, the real estate equivalent of "earnings"). The company had excellent leasing activity and rental rate increases of 5.6% on renewals. And Digital Realty is one of the few companies to raise its full-year guidance despite all of the uncertainty in the economy right now, a great sign of management's confidence.
Finally, Digital Realty is an excellent income stock, with a 3% yield and a strong history of raising the payout every year. With the long-tailed AI-fueled data center demand as a tailwind, now could be a great time to take a closer look.
The second one isn't a single stock, but an AI-focused ETF. In a nutshell, I want exposure to smaller, high-potential AI stocks, but don't want to be too reliant on any single company's success. That's why I recently bought shares of Ark Autonomous Technology & Robotics ETF (ARKQ 0.84%).
There are two big differences between this and most other AI ETFs. First, this is an actively managed fund, meaning that a portfolio manager (in this case, Cathie Wood), is selecting stocks with the goal of beating an index. Second, unlike most AI ETFs, this one isn't focused on the megacap usual suspects, with smaller AI innovators making up most of the top holdings. It certainly owns stocks like Nvidia, but it's not even in the fund's top 10 by weight.
As of the latest information, the Ark Autonomous Tech & Robotics ETF owns three dozen stocks, and top holdings include companies like Kratos Defense & Security, Teradyne, Archer Aviation, and Rocket Lab USA.
As mentioned, both of these can be turbulent investments over short periods. However, they can be excellent ways for patient investors to get AI exposure without too much downside risk in the case of Digital Realty or too much individual stock exposure with the ETF, and I'm confident that investors who buy and hold for several years will be glad they did.
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