MW Forget the 'Magnificent Seven' - these 7 cheap tech and AI stocks are better buys right now

By Michael Brush

This mutual-fund manager stays calm through uncertainty -and significantly outperforms the stock market

When unforeseen market-moving events heighten investors' anxiety, the best thing an investor can do is find discounted stocks to own for the long term, as conditions stabilize.

This mindset has helped Needham Aggressive Growth Fund NEAGX manager John Barr keep calm during troubling times - and significantly outperform the stock market. "As bad as things may seem, if you look out five years, things will be all right," he says.

Simple - but not easy. Yet over the past five years, Barr's fund is up more than twice as much as its rival funds and benchmark index, according to Morningstar Direct.

Since Barr's record is so unusually good, I recently checked in with him to learn about other strategies that help him produce those results. Unlike so many fund managers, Barr gets his market-beating returns with no help from the so-called Magnificent Seven stocks, outside of a small position in Apple $(AAPL)$.

Three key lessons for investors:

1. Look beyond the Magnificent Seven to "picks and shovels" - companies that produce or supply the services and components that other companies need.

2. Barr positions to benefit from long-term trends, including AI and data-center growth, the increasing complexity of semiconductors and the reshoring of U.S. multinationals.

3. Many of the fund manager's investments are smaller, lesser-known companies. That's the point. Because they are underfollowed by Wall Street and the media, these companies' product rollouts are mostly unrecognized. This increases the odds they are "hidden compounders" which could grow tenfold or more.

Skeptics warn AI is in a bubble. Barr dismisses these warnings as another example of more noise to be ignored. "AI is in its early stages," he says. One stock he points to is Vertiv Holdings LLC $(VRT.AU)$, which he says will continue to benefit from the growth of AI and the build-out of the data centers AI needs to function.

The digital infrastructure is complex, and it runs hot. Vertiv, which traces its roots back to the first company to sell computer-room air conditioning in 1946, develops and sells the components and cooling systems that keep data centers running. This stock is well into 10-bagger-plus status, but Barr thinks it has more to run. It was a top-10 holding for the fund at the end of the first quarter.

The computing and power conservation demands of AI, electric vehicles and smartphones continue to drive up the complexity of semiconductors.

Here are four stocks that should benefit:

FormFactor Inc.: (FORM) provides test and measurement tech used in chip making. It should get growth from the sale of "probe cards" used to test how well chips work while they are still being made. Its probe cards are essential for the production of high-bandwidth memory used by AI.

Camtek Ltd.: $(CAMT)$ This company sells high-end testing and measurement equipment used in the semiconductor industry. Camtek should see continued solid revenue growth because of the recent rollout of two new testing products: Eagle G5 and Hawk. They are used in the manufacturing of chips for high-performance computing that supports AI applications.

PDF Solutions Inc.: (PDFS) This company offers products that help chip makers collect and analyze data to improve the yield and quality of their products. "They catch errors, which helps manufacturers save money," Barr says. Also, the company is founder-run, which can be a plus.

Arteris Inc.: $(AIP)$ Arteris is a seller of the technology that helps various components subsystems on semiconductors communicate. As system-on-chip semiconductors get more complex because of the need for more computing power, Arteris should be a beneficiary. The company has introduced several new products in the past 18 months that should help drive more growth than the market recognizes, Barr predicts.

Two stocks to capture renewed U.S. industrial growth: President Donald Trump's tariff policies are designed to encourage more manufacturing in the U.S. Companies that supply the "picks" and "shovels" to build and automate these manufacturing plants could do well, Barr says.

Two other stocks to consider:

Vishay Intertechnology Inc.: $(VSH)$ Automation will play a big role in new manufacturing plants in the U.S. Vishay plays right into that trend. It sells computer chips and electronic components used in automated factory equipment, among other products.

"We are supporting next-level automation in multiple areas, including factories, the electrification of the automobile, 5G network technology, artificial intelligence, and the rapid expansion of connectivity across everything," the company says.

Cognex Corp.: $(CGNX)$ Products offered by Cognex make sure a factory's operations are progressing smoothly, because humans can't always be relied on to do this. The company says its "machine vision products" surveillance systems are particularly valuable for "applications in which human vision is inadequate, or where substantial cost savings are obtained through the reduction of labor or improved product quality." The systems are also used in e-commerce warehouses, another growth area, Barr notes.

Barr says potential growth from Vishay's new plants in Mexico and Wales and a new marketing approach at Cognex are not fully priced in these companies' shares, making both of them valuable hidden compounder" investments.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned NVDA, TSLA and AMZN. Brush has suggested NVDA, TSLA, AMZN and AAPL in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks

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-Michael Brush

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June 24, 2025 08:05 ET (12:05 GMT)

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