These 3 AI Stocks Could Soon Enter the S&P 500. Are They Worth Buying Before the Move?
Three AI infrastructure companies are growing fast, but none have joined the S&P 500. See how each compares in size, valuation, and risk.
Artificial intelligence (AI) is driving investment opportunities beyond traditional tech leaders. Astera Labs (ALAB -10.93%), Credo Technology Group (CRDO -8.65%), and Sanmina (SANM -4.33%) are three promising firms benefiting from increased AI spending. None of the three companies were added to the S&P 500 in September, with the next rebalancing set for December 21.
To qualify for the S&P 500, a company must have a market capitalization of at least $22.7 billion and positive earnings. If AI spending continues to fuel growth, these stocks could become future S&P 500 candidates, potentially benefiting early investors. Astera Labs, the largest of the three by market value, leads the pack. The company specializes in connectivity solutions for AI systems, addressing bottlenecks as these systems grow more complex.
Its Scorpio fabric switches, optical connectivity, and custom solutions cater to the evolving needs of AI data centers. Investors demand strong growth from Astera, as reflected in its forward price-to-earnings (P/E) ratio of nearly 45 times. However, growth hinges on AI spending, which could face competition and shifting standards.
Credo Technology, on the other hand, tackles the broader challenge of data movement across advanced AI data centers. The company offers high-speed connectivity products, including copper and optical solutions, helping customers maintain reliable data transmission across AI infrastructure. Its optical connectivity expansion and diverse networking hardware portfolio make it a strong contender for S&P 500 inclusion.
Credo's market value of $33 billion exceeds the S&P's $22.7 billion minimum, though it faces risks related to customer concentration, competition, and reliance on AI spending. Sanmina provides manufacturing solutions for electronic and industrial systems. As data center operators expand, the demand for reliable manufacturing partners grows, benefiting Sanmina's role in the broader supply chain.
The company recently acquired ZT Systems to enhance its cloud and AI infrastructure manufacturing capabilities. While Sanmina's $9.4 billion market value falls short of the S&P 500's $22.7 billion minimum, its forward P/E ratio of just over 12 suggests it could be a value-oriented investment in the AI boom. Investors should closely monitor Astera Labs, Credo Technology, and Sanmina, as these three companies may soon join the S&P 500, potentially offering significant returns to early investors.
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