In the ever-evolving landscape of technology stocks, Nicholas Mersch, a Portfolio Manager at Purpose Investments, offers his insights for May 13, 2026. Mersch's focus is on the semiconductor sector, a critical component in the AI infrastructure boom. He highlights three key picks: Micron, Lumentum, and Vicor, each playing a unique role in the AI supply chain.
The Semiconductor Sector: A Booming Industry
Mersch begins by emphasizing the structural underbuilding of AI infrastructure, particularly in the semiconductor sector. This underbuilding has led to a surge in demand, with companies like Meta increasing their capital expenditures (capex) and hardware gaining pricing power. The supply chain dynamics are intriguing, with a need to zoom out to understand the broader context before focusing on specific companies.
Investing in Cash Flow: A Wise Strategy
One of Mersch's key takeaways is the importance of investing in companies that are cashing in on the AI boom, rather than those writing the cheques. This strategy is particularly relevant in the semiconductor sector, where companies like Micron, Lumentum, and Vicor are benefiting from the AI revolution.
Micron: Scarcity Trade Inside the Scarcity Trade
Micron is positioned as a scarcity trade within a scarcity trade. The company's high-bandwidth memory capacity is effectively sold out through 2026, with HBM4 sampling to customers and DRAM pricing drifting higher due to supply discipline. The single most significant corporate signal of the quarter was Meta's decision to hike capex, naming memory pricing as the reason. Mersch notes that the setup is allocation-driven, not share-driven, and highlights the qualification gap between SK Hynix and Samsung, which presents margin opportunity.
Lumentum: Lasers and Optical Components in AI Data Centers
Lumentum specializes in lasers and optical components that facilitate data transfer between computer chips in AI data centers. The company's recent quarter showcased impressive revenue growth, and management expects further expansion. Nvidia's equity investment and multibillion-dollar order commitment ensure Lumentum's ability to build new factories. Mersch emphasizes the company's position in the narrowest part of the AI supply chain, where demand exceeds supply.
Vicor: Power Conversion Modules for AI Chips
Vicor's Vertical Power Delivery solution addresses the power challenges of modern AI chips. By stacking power modules directly underneath the chip, Vicor's approach is more efficient, space-efficient, and cooler than competitors. The company's revenue and backlog figures are impressive, with a significant jump in customer orders. Mersch highlights the hidden royalty business, where Vicor collects licensing fees from competitors, adding optionality to the investment.
Conclusion: Stay Long Semis, Stay Away from Software
In conclusion, Mersch advises staying long in the semiconductor and infrastructure sectors, while avoiding software. The AI boom is driving significant demand, and companies like Micron, Lumentum, and Vicor are well-positioned to benefit. The market outlook is positive, with capex spiking and pricing power in the hands of hardware companies. Mersch's picks offer a strategic approach to investing in the AI revolution, focusing on the companies that are cashing in on the boom.
