'Get it while it's cheap': An investment firm reveals its top under-the-radar AI play
Kerrisdale Capital has published some high-profile short bets in recent months, though the firm's latest investment view is more upbeat.
The investment firm published a report on June 30, revealing a long position in Regal Rexnord, an automation and manufacturing company. Kerrisdale highlighted its exposure to both the data center and robotics industries as integral to its bullish thesis. The stock is up 63% year-to-date but, Kerrisdale's analysts still see it as undervalued.
"Get it while it's cheap," Kerrisdale wrote. "Despite an impressive strategic and financial transformation and exposure to a wealth of popular secular growth drivers, Regal is one of the cheapest industrial stocks in the market today."
Kerrisdale highlighted in an X post three other long positions in companies in the data storage and electric utilities spaces have surged significantly over the past year.
Our 3 AI / Data Center plays from last year$ACMR: +580%$STX: +830%$AIXA: +270%
We have a new datacenter and humanoid beneficiary tmrw
The firm noted that Regal is currently trading at 11.5 times the company's anticipated EBITDA for 2027, but the firm also highlighted the valuation gap between Regal and two of its peers, RBC Bearings and Parker-Hannifin, which has increased even as share prices have risen.
"In a world where even a whiff of data center revenue in a company's opportunity pipeline can drive material multiple expansion, Regal's exclusion from the party stands out," Kerrisdale wrote. "Where's the love? A sum-of-the-parts analysis to properly match segment growth profile to valuation multiple yields 81% upside in Regal shares."
While the data center boom continues to be a market driving trend, Regal still operates mostly under Wall Street's radar. But as Kerrisdale repeatedly noted in the report, its status as a supplier of critical components for the companies building data centers puts it in an ideal position to benefit from the booming market.
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A popular AI trade has been "pick-and-shovel" companies building the tools and the infrastructure enabling the technology. Areas such as power and industrial metals suppliers can be compromised by supply chain bottlenecks, but for component manufacturers like Regal, these risks are less severe, Kerrisdale said.
Kerrisdale maintains, though, that Regal's robotics exposure may be just as valuable as its ties to data centers, if not more. Investors are piling into physical AI at a time when Regal is quietly supplying the gearings and precision motors that companies need to build robots.
"Physical AI, or the extension of artificial intelligence into the physical world, promises to revolutionize manufacturing and logistics," Kerrisdale added. "Regal has a broad portfolio of motors and linear motion products required for robotics, conveyor systems, and warehouse material handling that account for 21% of total revenue."
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