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Although we have all become very familiar with the Artificial Intelligence darlings like Nvidia and Microsoft, there are a handful of companies that are quietly powering this revolution, creating the tools and infrastructure that enable AI's remarkable capabilities.
While AI advancements grab headlines, these companies play a crucial, yet often unseen, role in its development. Here, we dive into three such companies:
Cadence Design Systems, ASML Holdings and Arista Networks.
It is also worth noting that these companies aren't overly reliant on the burgeoning technology either, as the stocks have been mega-performers in their own right. Cadence Design Systems, ASML Holdings, and Arista Networks have all trounced the broad market over the last decade, further cementing them as worthy investment considerations.
Cadence Design Systems: Architects of the AI Chip
Imagine intricate blueprints for miniaturized cities teeming with billions of transistors. That's what Cadence Design Systems does, providing Electronic Design Automation (EDA) software that helps design and verify complex integrated circuits (ICs), the brains powering everything from smartphones to AI supercomputers.
Cadence plays a crucial role in developing the specialized chips needed for AI applications. Their tools enable engineers to create efficient, high-performance AI chips with features like specialized processing units and optimized memory access. As AI demands grow, so too will the need for advanced EDA solutions, potentially boosting Cadence's prospects.
Cadence Design Systems currently enjoys a Zacks Rank #2 (Buy) rating, indicating upward trending earnings revisions. Expectations have been upgraded across timeframes for the chip designer.
CDNS stock is already up 10.4% YTD, showing considerable momentum.
ASML Holdings: Building the Foundation
At the heart of chip manufacturing lies ASML Holdings, the undisputed leader in extreme ultraviolet (EUV) lithography systems. These complex machines etch minuscule circuit patterns onto silicon wafers, enabling the creation of ever-denser, more powerful chips.
EUV lithography is crucial for producing the advanced chips needed for AI applications. ASML's dominance in this space positions them as a key player in enabling the AI revolution.
Although ASML has a Zacks Rank #3 (Hold) rating, signaling a mixed earnings revisions trend, it still has a lot going for.
ASML sits in the top 7% of theZacks Industry Rank and boasts very impressive EPS growth forecasts over the next 3-5 years. Over that period, earnings are expected to climb 20.3% annually. Additionally, ASML has a near-monopoly in EUV lithography, which has incredibly high barriers of entry and recurring revenues, securing its business future.
The stock market has been strong since the start of the year, but ASML Holdings has been stronger. The stock is up an incredible 21.3% YTD.
Arista Networks: The AI Communication Hub
As AI models grow larger and more complex, efficient communication between data centers becomes crucial. Enter Arista Networks, a leader in high-performance data center networking solutions.
Arista's switches and routers are specifically designed to handle the demanding workloads of AI applications, enabling efficient data transfer and communication between AI systems.
As can be seen in the chart below, both ANET's share price and earnings revision trend have been steadily climbing higher over the past three years. Arista Networks has a Zacks Rank #2 (Buy) rating, further increasing the odds of another advance in the share price.
ANET stock has already rallied 13.7% YTD, demonstrating strong demand from investors.
Bottom Line
Because none of these stocks are household names, investors who can dive a little deeper into the minutiae of the industry can gain a real edge. But don't get it twisted, just because they aren't well known doesn't mean their contributions aren't vital to technological development.
By enabling the creation of specialized chips, building the manufacturing foundation, and facilitating high-speed data communication, they're laying the groundwork for AI's continued advancement.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Nvidia, Microsoft, Cadence Design Systems, ASML Holdings and Arista Networks
For Immediate Release
Chicago, IL – February 15, 2024 – Today, Zacks Investment Ideas feature highlights Nvidia (NVDA - Free Report) , Microsoft (MSFT - Free Report) , Cadence Design Systems (CDNS - Free Report) , ASML Holdings (ASML - Free Report) and Arista Networks (ANET - Free Report) .
AI Backdoor: 3 Stocks Quietly Powering the Boom
Although we have all become very familiar with the Artificial Intelligence darlings like Nvidia and Microsoft, there are a handful of companies that are quietly powering this revolution, creating the tools and infrastructure that enable AI's remarkable capabilities.
While AI advancements grab headlines, these companies play a crucial, yet often unseen, role in its development. Here, we dive into three such companies:
Cadence Design Systems, ASML Holdings and Arista Networks.
It is also worth noting that these companies aren't overly reliant on the burgeoning technology either, as the stocks have been mega-performers in their own right. Cadence Design Systems, ASML Holdings, and Arista Networks have all trounced the broad market over the last decade, further cementing them as worthy investment considerations.
Cadence Design Systems: Architects of the AI Chip
Imagine intricate blueprints for miniaturized cities teeming with billions of transistors. That's what Cadence Design Systems does, providing Electronic Design Automation (EDA) software that helps design and verify complex integrated circuits (ICs), the brains powering everything from smartphones to AI supercomputers.
Cadence plays a crucial role in developing the specialized chips needed for AI applications. Their tools enable engineers to create efficient, high-performance AI chips with features like specialized processing units and optimized memory access. As AI demands grow, so too will the need for advanced EDA solutions, potentially boosting Cadence's prospects.
Cadence Design Systems currently enjoys a Zacks Rank #2 (Buy) rating, indicating upward trending earnings revisions. Expectations have been upgraded across timeframes for the chip designer.
CDNS stock is already up 10.4% YTD, showing considerable momentum.
ASML Holdings: Building the Foundation
At the heart of chip manufacturing lies ASML Holdings, the undisputed leader in extreme ultraviolet (EUV) lithography systems. These complex machines etch minuscule circuit patterns onto silicon wafers, enabling the creation of ever-denser, more powerful chips.
EUV lithography is crucial for producing the advanced chips needed for AI applications. ASML's dominance in this space positions them as a key player in enabling the AI revolution.
Although ASML has a Zacks Rank #3 (Hold) rating, signaling a mixed earnings revisions trend, it still has a lot going for.
ASML sits in the top 7% of the Zacks Industry Rank and boasts very impressive EPS growth forecasts over the next 3-5 years. Over that period, earnings are expected to climb 20.3% annually. Additionally, ASML has a near-monopoly in EUV lithography, which has incredibly high barriers of entry and recurring revenues, securing its business future.
The stock market has been strong since the start of the year, but ASML Holdings has been stronger. The stock is up an incredible 21.3% YTD.
Arista Networks: The AI Communication Hub
As AI models grow larger and more complex, efficient communication between data centers becomes crucial. Enter Arista Networks, a leader in high-performance data center networking solutions.
Arista's switches and routers are specifically designed to handle the demanding workloads of AI applications, enabling efficient data transfer and communication between AI systems.
As can be seen in the chart below, both ANET's share price and earnings revision trend have been steadily climbing higher over the past three years. Arista Networks has a Zacks Rank #2 (Buy) rating, further increasing the odds of another advance in the share price.
ANET stock has already rallied 13.7% YTD, demonstrating strong demand from investors.
Bottom Line
Because none of these stocks are household names, investors who can dive a little deeper into the minutiae of the industry can gain a real edge. But don't get it twisted, just because they aren't well known doesn't mean their contributions aren't vital to technological development.
By enabling the creation of specialized chips, building the manufacturing foundation, and facilitating high-speed data communication, they're laying the groundwork for AI's continued advancement.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.