Two stock picks to capitalize on Wall Street's misguided AI fears

By Philip van Doorn

Sowmdeb Sen of Silvant Capital Management highlights companies poised to benefit from the acceleration of AI spending

Sowmdeb Sen of Silvant Capital Management expects both companies to continue benefiting from the AI-infrastructure build-out and adoption of AI by companies.

A cycle of rising interest rates can cause money to move from the stock market, no matter how well the economy is performing. But investors need to look past gloomy daily headlines and consider what's really going on when selecting stocks for long-term growth.

Despite turmoil in the artificial-intelligence space over the past several months, Sowmdeb Sen, a senior portfolio manager at Silvant Capital Management in Atlanta, said there are still excellent investment opportunities. "The key metrics we monitor for AI are actually accelerating," he said during an interview with MarketWatch.

Sen co-manages the Virtus Silvant Mid-Cap Growth Fund DRMCX, which is rated five stars (the highest rating) within Morningstar's "Mid-Cap Growth" investment category.

Even "obvious" expectations for interest rates might not pan out. A selloff of 10-year U.S. Treasury notes BX:TMUBMUSD10Y caused yields to increase to a 2026 intraday peak of 5.37% on Oct. 7 from 4.17% at the end of last year. That action has reversed, with 10-year Treasury notes yielding 4.97% early Monday. Prices of bonds and notes move in the opposite direction of yields.

The bond market's moves have been on investors' minds, because higher yields mean higher costs for hyperscalers and other companies borrowing to fund the AI-infrastructure build-out.

We might still be at an early stage of the AI spending cycle

Sen said he takes comfort in the notion that spending on data centers, related equipment and software is still increasing as companies and individuals find more uses for AI. He cited SpaceX (SPCX) as a recent example. During the company's earnings call on Oct. 20, SpaceX CEO Elon Musk said he was "fairly confident of being able to bring an incremental 10 gigawatts of compute online in 2027," according to a transcript provided by LSEG. That would be an increase from the 2.5 to 3 gigawatts Musk expects SpaceX to have online by the end of this year.

But Musk also said: "We're actually going to aim for an incremental 20 gigawatts of power and cooling infrastructure next year."

Musk made it clear that he could not promise the company would achieve this goal, but said: "We have a plan where if everything goes right, we'll have 20 gigawatts of incremental power, I should say, next year. So 23 gigawatts roughly in total."

SpaceX CFO Bret Johnsen said during the same call that he expected the company's fourth-quarter capital expenditures to range from $35 billion to $40 billion, increasing from reported third-quarter capex of $19.59 billion.

With such rapid acceleration of spending, and the ultimate aim of 23 gigawatts of what Johnsen called "nameplate compute," Sen said he expected SpaceX's annual capital spending to reach $200 billion. But there are higher expectations. Among analysts polled by FactSet, the consensus estimate for the company's 2027 capex total was $249.42 billion, up from an estimated $80.4 billion this year.

As further fuel to the AI capex trend, Meta Platforms (META) announced on Monday plans to raise at least $95 billion through stock offerings. The company said it expected its 2026 capex to range from $135 billion to $145 billion. The consensus estimate is that Meta's capex will increase to $208.04 billion in 2027.

Two AI-related stock picks

Sen named Bloom Energy (BE) as an ideal play on the data-center-construction wave. The company builds on-site power-generation equipment fueled by natural gas, biogas and hydrogen.

For a new data center, "sometimes you take two years to get onto the traditional grid," for power, Sen said. "But Bloom creates energy from hydrogen gas, with faster speed - three to four months."

On Thursday, Bloom reported third-quarter revenue of $1.24 billion, up 138% from the third quarter of 2025. Expectations are for 2027 sales to increase 63% to $7.16 billion, from an expected total of $4.4 billion in 2026.

That consensus 2027 revenue estimate has risen 12% since the end of June, according to FactSet.

Bloom trades at a forward price-to-earnings ratio of 39.6 and a forward price-to-sales ratio of 8.6, based on consensus 12-month estimates. So it isn't a cheap stock compared with the weighted forward P/E of 18.7 and forward price/sales of 3.2 for the S&P 500 SPX.

Then again, investors pay up for a rapid grower. Based on consensus estimates among analysts polled by FactSet, Bloom is expected to increase revenue at a compound annual growth rate (CAGR) of 54% from 2026 through 2028, while the S&P 500's projected weighted revenue CAGR is 8.6%. Bloom's projected earnings-per-share CAGR from 2026 through 2028, based on consensus estimates, is 65.4%, compared with a projected 16.4% EPS CAGR for the S&P 500.

The other AI-related selection from Sen was Manhattan Associates (MANH), which develops supply-chain software used by retailers.

Last year, Manhattan Associates "was left for dead," Sen said, as investors were concerned that AI was threatening the company's business, leading to a 34% decline in the stock. So far in 2026, the stock has risen 37.6%.

Sen said he and his colleagues aim to select stocks of companies that can beat expectations of analysts, investors and even the companies' own management teams and competitors.

He said that, based on discussions the Silvant team has had with management of Manhattan Associates and the company's customers, as well as the team's assessment of market survey data and comments at industry conferences, retailers "have been using more AI product from Manhattan Associates, rather than using OpenAI or some other customized tool."

"Some of the customers are seeing 15% declines in costs from Manhattan AI agents which they introduced," Sen added.

He said that institutional investors had been expecting Manhattan Associates' cloud-services revenue growth to slow, and consensus estimates were in line with that view. But, for the second quarter, the company reported 26% year-over-year cloud revenue growth and total revenue growth of 9%.

The stock trades at a forward P/E of 39.6 and a forward price/sales ratio of 11.1. The consensus estimates now call for sales CAGR of 8.8% from 2026 through 2028, with a projected EPS CAGR of 13.5%.

Time will tell if Manhattan Associates continues to beat analysts' expectations.

Don't miss: Looking for AI stocks that are still cheap? Consider these two under-the-radar picks.

-Philip van Doorn

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10-26-26 1047ET