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AI Frenzy is Not Over: 5 Stocks in Focus at Lucrative Valuation
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The astonishing rally of U.S. stocks that started at the beginning of 2023 was predominantly driven by the technology sector. An unprecedented adoption of generative artificial intelligence (AI) technology across the world was the prime factor.
As expectations for a rate cut in September reached 100%, investors’ preference shifted from these extremely overvalued AI stocks to the beaten-down rate-sensitive cyclical stocks. Moreover, fear of a recession, following the release of a few weaker-than-expected key economic data, raises concerns that big companies may not maintain their current level of gigantic expenditure for AI-related R&D.
Consequently, AI stocks suffered the maximum brunt of a recent stock market meltdown. On Aug 2, the tech-heavy Nasdaq Composite entered into correction territory as it fell more than 10% from its recent high recorded on Jul 11.
Is Recession Nearby or a Knee-Jerk Expression?
Theoretically a recession means contraction of GDP (negative GDP growth rate) for two consecutive quarters. The U.S. GDP grew at 1.4% in first-quarter 2024. The first reading of second-quarter GDP was 2.8%. On Aug 1, the Atlanta Fed GDPNow projected a 2.5% GDP growth rate for the third quarter.
Some soft key economic data over a period of time never indicate a nearby recession. In fact, the Fed was eagerly waiting for these weak economic data, especially labor market data, along with a gradually declining inflation rate, in order to initiate a rate-cut regime.
Finally, the recent AI turmoil is nothing but profit-taking, especially on the part of institutional investors. Stock markets consist of bull and bear operators. As bulls fly high, bears wait quietly for a suitable time and some reasons to be good enough for profit-booking so that they can reenter the market at a reasonably low level. Stock prices of most of the AI giants have skyrocketed 100-400% in the past 19 months. Therefore, the speculation of a market correction was rife in the last couple of months.
AI Frenzy Remains Intact
So far, no negative news appears for the generative AI ecosystem. Bloomberg Intelligence estimates that generative AI spending will increase from $67 billion in 2023 to $1.3 trillion by 2032. PricewaterhouseCoopers International Ltd. estimated that AI could contribute up to $15.7 trillion to the global economy in 2030. Of this, $6.6 trillion is likely to come from increased productivity and $9.1 trillion should come from consumption-side effects.
5 AI Giants in Focus At an Attractive Level
The recent meltdown has made several AI bigwigs attractive from a long-term investment point of view. AI turmoil may continue for the next few days. Investors should keenly watch these five stocks to create a lucrative portfolio.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Free Report) has become a new poster boy on the global AI frenzy. The company is the largest manufacturer of AI-based chipsets for the world’s best AI chipset developers. TSM reported excellent results for second-quarter 2024 beating both top and bottom lines estimates, supported by a 3-nanometer chipset boom.
The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum. TSM’s growing efforts to ramp up the production of 3nm and development of 2nm is a plus.
For third-quarter 2024, Taiwan Semiconductor projects revenues between $22.4 billion and $23.2 billion. The company also expects more than 20% growth in 2024 revenues. The Zacks Consensus Estimate for third-quarter and 2024 revenues is pegged at $22.72 billion and $85.26 billion, indicating year-over-year growth of 31.5% and 23%, respectively.
The consensus mark for third-quarter 2024 earnings is pegged at $1.69 per share, suggesting year-over-year growth of 31%. The estimate has been revised upward by 8.3% in the last 30 days. The consensus mark for 2024 earnings is pegged at $6.37 per share, indicating year-over-year growth of 18.9%. The estimate has been revised upward by 0.9% in the last 30 days.
The stock price has plunged 22.5% from its 52-week high. The average price target of brokerage firms represents an increase of 29.4% from the last closing price of $149.86. The brokerage target price is currently in the range of $170-$250. Thus, every dip has a strong upside potential. TSM currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
NVIDIA Corp. (NVDA - Free Report) is expected to benefit in two ways. Demand for its Hopper chips remains strong and an industry-wide shift from central processors to NVDA-made accelerators. This undisputed global leader in the generative AI chipset developer space is aggressively differentiating its products.
On May 22, CEO Jensen Huang said that the company’s next-generation AI chip, Blackwell Ultra, would be the next driver. These chips will be available in data centers in the fourth quarter of fiscal 2025. Within the series, the B200 is 30 times speedier than its predecessor.
On Jun 2, NVDA unveiled its new AI chip architecture called “Rubin.” Rubin is set to be introduced in 2026. NVIDIA will introduce an Ultra version of Rubin in 2027. On Jul 22, Reuters reported that the company is working on a B20 version of its flagship chipset for the Chinese market that would be compatible with current U.S. export restrictions.
NVDA will report second-quarter fiscal 2025 earnings results on Aug 28. The Zacks Consensus Estimate for current-quarter earnings has improved 1.6% over the last 30 days. It recorded positive earnings surprises in the last four reported quarters, with an average beat of 18.4%.
The stock price has slid 23.8% from its 52-week high. The average price target of brokerage firms represents an increase of 29.4% from the last closing price of $107.27. The brokerage target price is currently in the range of $90-$200. Thus, every dip has a strong upside potential. NVIDIA currently carries a Zacks Rank #3 (Hold). However, analyzing the above positives, this stock is a potential candidate to enter a Zacks Buy Rank (Rank #1 or 2).
Image Source: Zacks Investment Research
Super Micro Computer Inc. (SMCI - Free Report) has benefited on the back of robust demand for severs powered by high-end generative AI chipsets. SMCI designs, develops, manufactures, and sells energy-efficient, application-optimized server solutions based on the x86 architecture.
An astonishing rise in demand for high-performance rack servers boosted SMCI’s top and bottom lines. In order to support aggressive workloads, data centers are aggressively demanding high-density rack space and direct-to-chip liquid cooling.
The company makes servers using NVIDIA processors. Super Micro Computer is positioned as a leading provider of one-stop-shop, high-performance rack servers capable of powering advanced AI applications.
SMCI’s solutions include a range of rack mount and blade server systems, as well as components. SMCI’s Server Building Block Solutions provide benefits across many environments, including data center deployment, high-performance computing, high-end workstations, storage networks and standalone server installations.
Super Micro Computer will report fourth-quarter and full-year fiscal 2024 earnings results on Aug 6. The Zacks Consensus Estimate for last-quarter fiscal 2024 earnings has remained the same over the last 60 days. It recorded positive earnings surprises in the last four reported quarters, with an average beat of 7%.
The stock price has plummeted 49.2% from its 52-week high. The average price target of brokerage firms represents an increase of 53.1% from the last closing price of $624.65. The brokerage target price is currently in the range of $325-$1,500. Super Micro Computer currently carries a Zacks Rank #3 (Hold). However, analyzing the above positives, this stock is a potential candidate to enter a Zacks Buy Rank (Rank #1 or 2).
Image Source: Zacks Investment Research
Micron Technology Inc. (MU - Free Report) has been benefiting from the enormous growth of AI applications that boosted demand for its high bandwidth memory chips. MU is a major producer of memory chips used in NVIDIA’s GPUs. MU is benefiting from improved market conditions, robust sales executions and strong growth across multiple business units.
Micron Technology anticipates the pricing of DRAM and NAND chips to increase, thereby improving its revenues. The pricing benefits will primarily be driven by rising AI servers, causing a scarcity in the availability of cutting-edge DRAM and NAND supplies. Also, 5G adoption in IoT devices and wireless infrastructure will spur demand for memory and storage.
Micron Technology has an expected revenue and earnings growth rate of 60.4% and more than 100%, respectively, for the current year (ending August 2024). The Zacks Consensus Estimate for current-quarter and current-year earnings have improved 13.7% and 26.1, respectively, over the last 60 days. It recorded positive earnings surprises in the last four reported quarters, with an average beat of 73.2%.
The stock price has tumbled 41.2% from its 52-week high. The average price target of brokerage firms represents an increase of 61.8i% from the last closing price of $92.70. The brokerage target price is currently in the range of $100-$225. The stock carries a Zacks Rank #2 (Buy) at present.
Image Source: Zacks Investment Research
Snowflake Inc. (SNOW - Free Report) is a major company providing cloud infrastructure to AI-based ecosystems. SNOW’s platform offers Data Cloud, which enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data and data products applying AI for solving business problems.
SNOW helps large enterprises using multiple public cloud services and their own servers to aggregate data into a “data pool” that produces a single source of information. Snowflake’s Cortex AI platform enables businesses to fine-tune models for their specific use, search unstructured data, and use AI to produce valuable insights. SNOW also offers its “Copilot” tool with Cortex AI architecture.
Snowflake will report second-quarter fiscal 2025 earnings results on Aug 21. The Zacks Consensus Estimate for current-quarter earnings has improved 6.7% over the last 30 days. It recorded positive earnings surprises in three out of the last four reported quarters, with an average beat of 74.8%.
The stock price has plunged 49.6% from its 52-week high. The average price target of brokerage firms represents an increase of 57.3% from the last closing price of $119.77. The brokerage target price is currently in the range of $105-$240. Super Micro Computer currently carries a Zacks Rank #3 (Hold). However, analyzing the above positives, this stock is a potential candidate to enter a Zacks Buy Rank (Rank #1 or 2).
Image Source: Zacks Investment Research
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AI Frenzy is Not Over: 5 Stocks in Focus at Lucrative Valuation
The astonishing rally of U.S. stocks that started at the beginning of 2023 was predominantly driven by the technology sector. An unprecedented adoption of generative artificial intelligence (AI) technology across the world was the prime factor.
As expectations for a rate cut in September reached 100%, investors’ preference shifted from these extremely overvalued AI stocks to the beaten-down rate-sensitive cyclical stocks. Moreover, fear of a recession, following the release of a few weaker-than-expected key economic data, raises concerns that big companies may not maintain their current level of gigantic expenditure for AI-related R&D.
Consequently, AI stocks suffered the maximum brunt of a recent stock market meltdown. On Aug 2, the tech-heavy Nasdaq Composite entered into correction territory as it fell more than 10% from its recent high recorded on Jul 11.
Is Recession Nearby or a Knee-Jerk Expression?
Theoretically a recession means contraction of GDP (negative GDP growth rate) for two consecutive quarters. The U.S. GDP grew at 1.4% in first-quarter 2024. The first reading of second-quarter GDP was 2.8%. On Aug 1, the Atlanta Fed GDPNow projected a 2.5% GDP growth rate for the third quarter.
Some soft key economic data over a period of time never indicate a nearby recession. In fact, the Fed was eagerly waiting for these weak economic data, especially labor market data, along with a gradually declining inflation rate, in order to initiate a rate-cut regime.
Finally, the recent AI turmoil is nothing but profit-taking, especially on the part of institutional investors. Stock markets consist of bull and bear operators. As bulls fly high, bears wait quietly for a suitable time and some reasons to be good enough for profit-booking so that they can reenter the market at a reasonably low level. Stock prices of most of the AI giants have skyrocketed 100-400% in the past 19 months. Therefore, the speculation of a market correction was rife in the last couple of months.
AI Frenzy Remains Intact
So far, no negative news appears for the generative AI ecosystem. Bloomberg Intelligence estimates that generative AI spending will increase from $67 billion in 2023 to $1.3 trillion by 2032. PricewaterhouseCoopers International Ltd. estimated that AI could contribute up to $15.7 trillion to the global economy in 2030. Of this, $6.6 trillion is likely to come from increased productivity and $9.1 trillion should come from consumption-side effects.
5 AI Giants in Focus At an Attractive Level
The recent meltdown has made several AI bigwigs attractive from a long-term investment point of view. AI turmoil may continue for the next few days. Investors should keenly watch these five stocks to create a lucrative portfolio.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Free Report) has become a new poster boy on the global AI frenzy. The company is the largest manufacturer of AI-based chipsets for the world’s best AI chipset developers. TSM reported excellent results for second-quarter 2024 beating both top and bottom lines estimates, supported by a 3-nanometer chipset boom.
The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum. TSM’s growing efforts to ramp up the production of 3nm and development of 2nm is a plus.
For third-quarter 2024, Taiwan Semiconductor projects revenues between $22.4 billion and $23.2 billion. The company also expects more than 20% growth in 2024 revenues. The Zacks Consensus Estimate for third-quarter and 2024 revenues is pegged at $22.72 billion and $85.26 billion, indicating year-over-year growth of 31.5% and 23%, respectively.
The consensus mark for third-quarter 2024 earnings is pegged at $1.69 per share, suggesting year-over-year growth of 31%. The estimate has been revised upward by 8.3% in the last 30 days. The consensus mark for 2024 earnings is pegged at $6.37 per share, indicating year-over-year growth of 18.9%. The estimate has been revised upward by 0.9% in the last 30 days.
The stock price has plunged 22.5% from its 52-week high. The average price target of brokerage firms represents an increase of 29.4% from the last closing price of $149.86. The brokerage target price is currently in the range of $170-$250. Thus, every dip has a strong upside potential. TSM currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
NVIDIA Corp. (NVDA - Free Report) is expected to benefit in two ways. Demand for its Hopper chips remains strong and an industry-wide shift from central processors to NVDA-made accelerators. This undisputed global leader in the generative AI chipset developer space is aggressively differentiating its products.
On May 22, CEO Jensen Huang said that the company’s next-generation AI chip, Blackwell Ultra, would be the next driver. These chips will be available in data centers in the fourth quarter of fiscal 2025. Within the series, the B200 is 30 times speedier than its predecessor.
On Jun 2, NVDA unveiled its new AI chip architecture called “Rubin.” Rubin is set to be introduced in 2026. NVIDIA will introduce an Ultra version of Rubin in 2027. On Jul 22, Reuters reported that the company is working on a B20 version of its flagship chipset for the Chinese market that would be compatible with current U.S. export restrictions.
NVDA will report second-quarter fiscal 2025 earnings results on Aug 28. The Zacks Consensus Estimate for current-quarter earnings has improved 1.6% over the last 30 days. It recorded positive earnings surprises in the last four reported quarters, with an average beat of 18.4%.
The stock price has slid 23.8% from its 52-week high. The average price target of brokerage firms represents an increase of 29.4% from the last closing price of $107.27. The brokerage target price is currently in the range of $90-$200. Thus, every dip has a strong upside potential. NVIDIA currently carries a Zacks Rank #3 (Hold). However, analyzing the above positives, this stock is a potential candidate to enter a Zacks Buy Rank (Rank #1 or 2).
Image Source: Zacks Investment Research
Super Micro Computer Inc. (SMCI - Free Report) has benefited on the back of robust demand for severs powered by high-end generative AI chipsets. SMCI designs, develops, manufactures, and sells energy-efficient, application-optimized server solutions based on the x86 architecture.
An astonishing rise in demand for high-performance rack servers boosted SMCI’s top and bottom lines. In order to support aggressive workloads, data centers are aggressively demanding high-density rack space and direct-to-chip liquid cooling.
The company makes servers using NVIDIA processors. Super Micro Computer is positioned as a leading provider of one-stop-shop, high-performance rack servers capable of powering advanced AI applications.
SMCI’s solutions include a range of rack mount and blade server systems, as well as components. SMCI’s Server Building Block Solutions provide benefits across many environments, including data center deployment, high-performance computing, high-end workstations, storage networks and standalone server installations.
Super Micro Computer will report fourth-quarter and full-year fiscal 2024 earnings results on Aug 6. The Zacks Consensus Estimate for last-quarter fiscal 2024 earnings has remained the same over the last 60 days. It recorded positive earnings surprises in the last four reported quarters, with an average beat of 7%.
The stock price has plummeted 49.2% from its 52-week high. The average price target of brokerage firms represents an increase of 53.1% from the last closing price of $624.65. The brokerage target price is currently in the range of $325-$1,500. Super Micro Computer currently carries a Zacks Rank #3 (Hold). However, analyzing the above positives, this stock is a potential candidate to enter a Zacks Buy Rank (Rank #1 or 2).
Image Source: Zacks Investment Research
Micron Technology Inc. (MU - Free Report) has been benefiting from the enormous growth of AI applications that boosted demand for its high bandwidth memory chips. MU is a major producer of memory chips used in NVIDIA’s GPUs. MU is benefiting from improved market conditions, robust sales executions and strong growth across multiple business units.
Micron Technology anticipates the pricing of DRAM and NAND chips to increase, thereby improving its revenues. The pricing benefits will primarily be driven by rising AI servers, causing a scarcity in the availability of cutting-edge DRAM and NAND supplies. Also, 5G adoption in IoT devices and wireless infrastructure will spur demand for memory and storage.
Micron Technology has an expected revenue and earnings growth rate of 60.4% and more than 100%, respectively, for the current year (ending August 2024). The Zacks Consensus Estimate for current-quarter and current-year earnings have improved 13.7% and 26.1, respectively, over the last 60 days. It recorded positive earnings surprises in the last four reported quarters, with an average beat of 73.2%.
The stock price has tumbled 41.2% from its 52-week high. The average price target of brokerage firms represents an increase of 61.8i% from the last closing price of $92.70. The brokerage target price is currently in the range of $100-$225. The stock carries a Zacks Rank #2 (Buy) at present.
Image Source: Zacks Investment Research
Snowflake Inc. (SNOW - Free Report) is a major company providing cloud infrastructure to AI-based ecosystems. SNOW’s platform offers Data Cloud, which enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data and data products applying AI for solving business problems.
SNOW helps large enterprises using multiple public cloud services and their own servers to aggregate data into a “data pool” that produces a single source of information. Snowflake’s Cortex AI platform enables businesses to fine-tune models for their specific use, search unstructured data, and use AI to produce valuable insights. SNOW also offers its “Copilot” tool with Cortex AI architecture.
Snowflake will report second-quarter fiscal 2025 earnings results on Aug 21. The Zacks Consensus Estimate for current-quarter earnings has improved 6.7% over the last 30 days. It recorded positive earnings surprises in three out of the last four reported quarters, with an average beat of 74.8%.
The stock price has plunged 49.6% from its 52-week high. The average price target of brokerage firms represents an increase of 57.3% from the last closing price of $119.77. The brokerage target price is currently in the range of $105-$240. Super Micro Computer currently carries a Zacks Rank #3 (Hold). However, analyzing the above positives, this stock is a potential candidate to enter a Zacks Buy Rank (Rank #1 or 2).
Image Source: Zacks Investment Research