Thinking beyond Nvidia to other AI stocks earned this investor once in a lifetime returns

Identifying a stock before it takes off is an elusive goal many investors share, but spotting three in one sector at the same time, is an even more daunting task.

Ocean Park Investments, led by Chief Investment Officer J. Dennis Jean-Jacques, has been able to do that in the artificial intelligence space, even as he looks beyond chipmakers like Nvidia and Advanced Micro Devices, which have already attracted a lot of attention.

"We try to look for value opportunities in areas that people and companies need and want," Jean-Jacques told CNBC in a telephone interview, adding that he's taken a value approach for 25 years.

Using this strategy, he identified three big winners: Eaton, Vertiv and Super Micro Computer. All three companies are capitalizing on the AI boom without competing directly with the chip giants.

Instead, two are likely to play a critical role in helping power the shift to AI, according to the investor, while the third, Super Micro Computer, stands to benefit from its close ties to Nvidia.

"Eaton holds a dominant position in the electrification sector," Jean-Jacques wrote in a newsletter released to shareholders last week. The company focuses on building and maintaining electric networks essential for the increase in power and data centers required by the burgeoning AI industry. 

The International Energy Agency has predicted that power needs from data centers, AI and cryptocurrency will double by 2026.

Eaton's stock price has nearly done that in the past 12 months. That's when Ocean Park saw value in the stock.

But that isn't necessarily a popular opinion. Sixty-seven percent of analysts covering Eaton shares rate it a buy or overweight, according to FactSet. On average, they have a $324.51 price target, which implies about 3% upside from Tuesday's close.

Around the same time the fund picked Eaton, Ocean Park also was buying Vertiv. The company, headquartered just outside Columbus in Westerville, Ohio, also builds power systems for data centers as well as cooling devices that allow servers and other high-tech manufacturing plants to operate more efficiently. The stock is up more than 560% over the past year.

Analysts surveyed by FactSet are overwhelming positive on the stock, with nearly all rating the shares a buy or overweight. The average price target of $89.06 implies more than 8% upside ahead.

Super Micro's gains over the past year have been even more staggering. It's Ocean Park's biggest winner. Jean-Jacques started acquiring the stock in mid-summer 2023. It is up 717% since then. 

The shares are also the top performer in the S&P 500, with a 243% gain so far in 2024. It was selected to join the index in March, replacing Whirlpool.

While Super Micro is involved in several areas of the high-tech landscape, it's its close relationship with Nvidia, which has its headquarters right across the street in San Jose, California, that has attracted investor focus. The company is a key Nvidia vendor that makes servers and other infrastructure including "clusters" of servers that are used for training generative AI models.

Wall Street also loves the stock. On Tuesday, Loop Capital analysts put a $1,500 target on Super Micro. In addition, JPMorgan officially began covering the stock with an "overweight rating" and a $1,150 price target — 25% higher than where the stock stands now.

Having three stocks in the portfolio perform like Eaton, Vertiv and Super Micro may be a once in lifetime event.

Jean-Jacques said the firm has about 40 long positions in its biggest fund, the Ocean Park Omaha Dislocation Fund. It aims to keep each investment at a 3% cap in order to avoid over-investment in one area.

Overall, the fund was up 8.61% in the first quarter of 2024, compared with a 10.5% gain for the S&P. But Ocean Park Investments almost tripled its HFRX Equity Hedge Fund Index in that same time period. (There are different share class fees for Ocean Park's investors but a 1.5% management charge is typical according to the fund.)

One of Jean-Jacques' tests is to "look for operational efficiency" in companies that may have the ability to increase margins by 30% to 50%.

He also appears to value management's skills. Jean-Jacques had been a long-time investor in Honeywell, which was led by CEO Dave Cote. It was Cote's role on the Vertex board that helped him decide to invest.

Jean-Jacques also credits his ability to ask simple questions to industry insiders, saying that asking the right questions often leads to investing success.