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

Needham Aggressive Growth Fund manager John Barr has significantly outperformed the market by investing in underfollowed, long-term trend beneficiaries, eschewing the 'Magnificent Seven' for 'picks and shovels' companies. His strategy focuses on identifying smaller firms positioned to capitalize on themes like AI and data center infrastructure (e.g., Vertiv), increasing semiconductor complexity (e.g., FormFactor, Camtek), and U.S. industrial reshoring (e.g., Vishay, Cognex). Barr believes these 'hidden compounders' offer substantial unrecognized growth potential by supplying critical components and services to emerging industries and automation trends.

Analysis

The investment strategy of Needham Aggressive Growth Fund (NEAGX) manager John Barr, which has led the fund to outperform its benchmark and peers more than twofold over the past five years, is centered on identifying undervalued, smaller-cap "picks and shovels" companies poised to capitalize on major secular trends. This approach deliberately eschews concentration in the "Magnificent Seven," focusing instead on companies providing essential components and services for AI infrastructure, semiconductor manufacturing, and U.S. industrial reshoring. For the AI and data center build-out, Vertiv (VRT) is highlighted for its critical cooling systems, with the manager believing its growth trajectory will continue despite its stock already achieving "10-bagger-plus" status. In the semiconductor space, the thesis targets increasing chip complexity, naming FormFactor (FORM) for its HBM probe cards, Camtek (CAMT) for new testing equipment, PDF Solutions (PDFS) for yield-improvement analytics, and Arteris (AIP) for on-chip communication technology. The strategy also captures the U.S. reshoring and automation trend through Vishay Intertechnology (VSH) and Cognex (CGNX), whose potential from new plants and marketing initiatives is believed to be underappreciated by the market. The core thesis is that these "hidden compounders" are underfollowed by Wall Street, offering unrecognized growth potential driven by specific product rollouts and strategic expansions.

Key Decisions for Investors

• Investors should consider diversifying from an over-concentration in mega-cap tech by researching small- to mid-cap companies that act as critical suppliers to long-term secular growth themes like AI and industrial automation.
• It is prudent to conduct due diligence on the specific growth catalysts identified, such as the new product cycles at Camtek (Eagle G5, Hawk) and Arteris, as the investment thesis hinges on this growth being unrecognized by the broader market.
• For portfolios positioned for long-term growth, the companies mentioned (VRT, FORM, CAMT, PDFS, AIP, VSH, CGNX) serve as a compelling research list for gaining exposure to the high-growth niches of data center infrastructure, semiconductor testing, and factory automation.
• Given that some highlighted stocks like Vertiv have already seen substantial appreciation, investors should carefully assess current valuations and market sentiment to determine appropriate entry points and manage risk.