It wasn’t particularly difficult for tech funds to deliver impressive returns in 2023. A frenzy around AI-adjacent stocks fueled the sector to robust gains: the Nasdaq Composite Index (IXIC) was up 43%, and the Technology Select Sector SPDR Fund (XLK) was up 56%. The S&P 500, by comparison, returned 24% — a stellar performance in its own right.
And yet, in addition to outperforming the broader market, Ivana Delevska’s Spear Alpha ETF (SPRX) managed to smash its peers in the tech sector. The fund was up 88% on the year and beat 99% of similar funds, according to Morningstar data.
Delevska, who worked at Citadel Asset Management before starting her fund, says she takes the same approach she did in her hedge fund days and does fundamental analysis of companies and “boots-on-the-ground research.” Her firm covers about 120 stocks, whittled down to 28 holdings. And every year, they focus on the themes that emerge from their coverage.
Last year, the main theme they decided to bet on was artificial intelligence, allowing them to be ahead of the market craze that ensued.
“We had been involved in Nvidia quite early. We were like the only ones buying it at the bottom, it really felt totally abandoned,” Delevska told Business Insider. “But it was, at the time, pretty obvious that AI was going to be a pretty big theme.”
Even below the broader trend, Delevska said her firm tries to identify sub-themes that will benefit from greater interest in AI. Right now, two of those sub-themes she’s bullish on include hardware and cybersecurity. Below are three names she’s continuing to bet on in 2024 that capture these themes.
3 AI stocks to buy
The first is chipmaker Nvidia (NVDA). The stock has led the AI charge since last year with its graphic processing units, and Delevska thinks it will continue to do so. Plus, she thinks its downside is limited given that its valuation has sunk since last year.
“What we like about it right now is it’s not only a way to play offense, but it also provides a defensive angle to our strategy,” she said. “Now it’s trading near to the lower end of the valuation range, so if the market sells off or there is a correction, it is going to have that support.”
Nvidia is expensive relative to the average stock, but Delevska is correct that its valuation is down significantly since last summer. She said this is because its earnings have increased faster than its share price.
The stock’s 12-month forward price-to-earnings ratio is 34.6 compared to 62.8 last July. Its PEG ratio, which considers future earnings over a longer period of time, is 0.69 versus 2.66 last summer. PEG ratios below 1.0 imply a stock is undervalued.
Second, Delevska is bullish on Snowflake (SNOW), the data storage company.
“That’s a play on the data infrastructure layer. They are basically going to see their fundamentals inflect a few months after the cloud vendors — the big hyperscalers like Azure and AWS — bottom,” Delevska said. “So going into this year, either this quarter or next quarter, we expect pretty positive surprises for them.”
She also said they’re entering a favorable product introduction cycle with AI becoming more widespread.
Finally, Delevska likes Zscaler (ZS), a cybersecurity firm. While she said a change in its go-to-market strategy has caused the stock to lag others in the cybersecurity space — it was up 98% in 2023 vs Crowdstrike’s 142% and Palo Alto Networks’ 111% — she’s betting on it catching up in 2024.
“They have a very unique business model that kind of breaks down the traditional castle and moat network security approach, so they’re kind of a disruptor in that space,” she said about the firm’s cloud-based security product as opposed to a hardware approach.
