Growth investors use a variety of methods to identify suitable stocks to include within their investment portfolios.
Some may go for reputable, large-cap technology stocks that possess a strong competitive moat.
Others may seek to identify sustainable trends that act as long-term tailwinds for businesses that can ride on them.
These trends double up as catalysts to help companies to post steady and sustainable growth.
Of course, investors need to ensure that a trend can persist and will not fizzle out and end up as a fad.
Otherwise, the stocks that ride on that trend may end up being value traps as their valuations may get pushed sky-high.
Here are three trends that should dominate for the remainder of 2023 and we identify several stocks that stand to benefit.
Generative artificial intelligence
The past few months have seen intense interest in the field of generative artificial intelligence (AI) stemming from the release of ChatGPT by OpenAI.
OpenAI is an AI research and deployment outfit that counts technology giant Microsoft (NASDAQ: MSFT) as one of its investors.
ChatGPT, which was released in November last year, taps into a large language model (LLM) dataset and interacts with users conversationally.
The software attracted a huge horde of users and reached 100 million active users by January 2023, just two months after its launch.
Just last month, there are signs that the chatbot’s novelty is wearing off as mobile traffic and usage declined month-on-month for the first time since its launch.
However, generative AI is now in the public’s eye and many technology companies are seeking to harness its capabilities to enhance their cloud software offerings.
Adobe (NASDAQ: ADBE) is incorporating its Adobe Firefly generative AI models into its various Adobe Illustrator software offerings.
Generative AI is also used for its Photoshop photo-editing software to allow users to add, remove, and extend visual content based on natural-language text prompts.
Over at Meta Platforms (NASDAQ: META), generative AI will be used to create customised advertisements for different companies by the end of this year.
Alphabet (NASDAQ: GOOGL) has also rolled out consulting services offering advice and tools on its Google Cloud service that makes use of generative AI.
It appears that this trend is still nascent and that many more companies could find new uses for this technology.
Semiconductor upswing
Semiconductors and microchips may also see an upswing in the second half of 2023.
The notoriously cyclical sector saw a sharp and unexpected downturn since last year as demand waned as the pandemic receded.
The sharp surge in digitalisation moderated while high inflation also dampened demand for electronic devices and gadgets, resulting in a wide swath of companies reporting reduced revenue and profits.
2022 saw slower growth in the global semiconductor market of just 3.3% year on year, according to World Semiconductor Trade Statistics (WSTS).
2023 will see a 10.3% year-on-year slump but a robust recovery is predicted for next year with growth estimated to be 11.8% year on year.
There are signs that the glut may be easing, thereby benefitting numerous players in the chip sector.
Micron’s (NASDAQ: MU) CEO believes that the memory industry has “passed its trough” and he expects margins to improve moving forward.
The Asian Development Bank issued a report stating that the prolonged downturn in semiconductors should bottom out by mid-2023.
Demand for generative AI should also accelerate the recovery in semiconductor demand, thereby benefitting companies such as Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), and Taiwan Semiconductor Manufacturing Company (NYSE: TSM).
Over in Singapore, semiconductor-related companies such as Venture Corporation Limited (SGX: V03), Micro-Mechanics (Holdings) (SGX: 5DD) and UMS Holdings (SGX: 558) also stand to benefit.
Cybersecurity
With increased digitalisation also comes increased responsibilities for ensuring that customers’ data remains secure.
Organisations face the unenviable task of protecting their data from hacking as the amount of storage and processing explodes.
Cyberattacks are becoming increasingly sophisticated as significant amounts of money are at stake.
A Mexico-based hacker recently released Android malware to compromise the security of worldwide financial institutions.
Another hacker group based in Russia has attacked the Port of Nagoya with ransomware, causing temporary cargo congestion.
Businesses need to rely on cybersecurity firms to ward off such attacks and ensure their data is not compromised.
Hence, firms such as Zscaler (NASDAQ: ZS), Fortinet (NASDAQ: FTNT) and Crowdstrike (NASDAQ: CRWD) look well-positioned to benefit from this tailwind.
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Disclosure: Royston Yang owns shares of Adobe, Alphabet, Meta Platforms and Micro-Mechanics.
