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On September 19, 2024
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A Bull Market Is Here: 2 Incredibly Innovative Growth Stocks Down 14% and 59% to Buy Right Now | The Motley Fool
These two companies are at the edge of innovation, which should help their stocks deliver market-crushing returns. Technological innovation has been one of the biggest catalysts for stock market growth over the last century, and that's unlikely to change anytime soon. For investors who back the right companies and allow growth trends and competitive wins to stack up over the long term, incredible returns are possible. With that in mind, read on to see why two Motley Fool contributors think that buying these two stocks right now while they're still down significantly from previous highs looks like a good move. Keith Noonan: Nvidia (NVDA -1.92%) is the company responsible for the advanced graphics processing units (GPUs) that are at the heart of the artificial intelligence (AI) revolution. It's also the market's most influential and intensely monitored battleground stock. Even after a 14% pullback from an all-time high reached in June, the company's stock is still up roughly 136% in 2024. Spurred by incredible demand from large data center customers, including Microsoft and Meta Platforms, Nvidia's sales and earnings growth has been nothing short of incredible. But some investors also wonder how long the company can sustain its stellar sales momentum and margins. With a market capitalization of roughly $2.86 trillion as of this writing, Nvidia's valuation has soared more than 2,480% over the last five years, and it stands as the world's third-most valuable company. There should be little doubt that it's a high-risk stock, but I also think that it's still one worth owning for long-term investors. In the second quarter, Nvidia posted a gross margin of 75.1% -- down from the record margin of 78.4% it posted in Q1. The company also guided for a gross margin of roughly 74.5% in the current quarter. The company is still posting fantastic margins, but it's not unreasonable to think that the business's gross margin may have hit a peak for now. On the other hand, Nvidia's outlook remains very promising. After growing sales 122% year over year in Q2, Nvidia expects Q3 sales to jump 79% compared to 2023's Q3. It also has a major performance catalyst on track to begin contributing in Q4 and then be an even bigger performance driver in the next fiscal year. Nvidia will launch its next-generation Blackwell chips in this year's final quarter, and the hardware is poised to deliver major AI performance improvements and huge revenue for Nvidia. CEO Jensen Huang has said he expects the Blackwell processors to be the company's most successful products ever. While Nvidia could price its Blackwell processors at levels that significantly boost gross margins, it doesn't necessarily have to go that route. The company is crushing the competition in the market for advanced GPUs and accelerators for AI, and a relatively small sacrifice on the margin front could help it secure advantages that shore up its long-term positioning in today's most important tech trend. For long-term investors looking for ways to play AI trends, Nvidia stock remains a worthwhile portfolio addition. Lee Samaha: There's no way to sugarcoat the situation; machine vision company Cognex's (CGNX -1.23%) end markets are struggling in 2024. Still, much of that struggle is already reflected in the share price (down 60% from its all-time high). But long-term investors aren't buying stocks for a few quarters' earnings but rather for their long-run earnings potential. Cognex and its machine vision solutions continue to have substantial growth opportunities. Using automated machine vision in manufacturing or logistics (such as e-commerce fulfillment) helps improve quality, consistency, efficiency, costs, and safety. It also creates digital information used in data analytics to improve processes. Management sees its end markets growing at 13% annually for the next several years, with Cognex slightly outgrowing its markets by 15% annually. Over the near term, Cognex is dealing with a lowering of growth expectations in two of its three key end markets: automotive and consumer electronics. Raised interest rates over the past few years dampened expectations for automotive sales this year, including electric vehicles (EVs), and Cognex's technology is utilized in EV battery production. Relatively high interest rates also challenged consumer discretionary spending (for example, on smartphones, where Cognex's machine vision helps layer screens). The result is a dampening of growth prospects in 2024. Given that the company tends to report larger orders in the spring and summer (as its customers gear up for rising production in the fourth quarter), it's unlikely that Cognex will have overly positive newsflow on orders before the spring of 2025. Still, these trends won't last forever, and a lower interest rate environment in 2025 could spur a release of pent-up investment spending in automotive and consumer electronics. Meanwhile, Cognex's logistics end market is already in recovery mode. That suggests that the weakness in the share price offers an ideal buying opportunity for a company with an excellent track record of growth.
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2 Top Tech Stocks to Buy in September | The Motley Fool
With the artificial intelligence (AI) market expected to triple in size through the end of the decade, investors who choose the right tech stocks should do very well. Statista projects the AI market to climb to $826 billion by 2030. Here are two stocks that will help you profit from this opportunity. The rapid adoption of AI is driving phenomenal growth for leading AI chip supplier Nvidia (NVDA -1.92%). The stock soared over the last year, but Nvidia continues to see growing interest from enterprises using cutting-edge AI models and applications, which spells more revenue growth and new highs for the shares. Data centers are still in the process of shifting from traditional computing using central processing units (CPUs) to accelerated computing for AI workloads using the far more powerful graphics processing units (GPUs). Nvidia's data center revenue grew 154% year over year last quarter, driven by strong demand for GPUs and networking products. Nvidia posted strong growth for many years, but the shift to AI has accelerated the company's growth. Companies choose Nvidia because it is available in every cloud. Importantly, customers can access a library of software programming models to get the most out of the GPUs across a variety of use cases, whether for AI workloads or running 3D graphics. The added value is one reason why Nvidia generates high margins on these chips, which helped drive a year-over-year increase of 168% in earnings per share last quarter. Management expects to see continued growth in the data center business in the near term, driven by its next-generation Blackwell AI computing platform and growing interest in generative AI software development. Analysts expect Nvidia to report earnings growth of 41% next year, which is enough to justify the stock's forward price-to-earnings (P/E) ratio of 40. The growing interest in AI software is a huge opportunity for ServiceNow (NOW 0.52%). The stock is hitting new highs following the company's latest financial results that showed strong demand for its AI-powered Now Assist software. Companies are increasingly looking for ways to improve productivity, and that benefits ServiceNow. It helps companies build applications that simplify tasks and save time with automation. The company consistently grew its revenue at double-digit rates for several years, but a 23% year-over-year increase in subscription revenue last quarter shows a big opportunity ahead. ServiceNow is having success closing large deals. Enterprises are clearly seeing value in ServiceNow's software, particularly its AI-powered Now Assist, and how it can help them improve profitability. Demand for Now Assist is booming, with net new annual contract value doubling over the previous quarter. It's been adopted by several companies, including Merck, Adobe, and Dell Technologies. The stock trades at a high forward P/E of 64. But the high valuation reflects ServiceNow's recurring revenue from subscriptions and expectations for profitable growth over the long term. The Wall Street consensus calls for earnings to grow 32% on an annualized basis over the next several years. The stock should be a long-term winner for shareholders.
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2 Artificial Intelligence (AI) Stocks to Buy Hand Over Fist Amid the Sell-Off | The Motley Fool
AI stocks are still down from their July peak. Here are two worth buying while they trade at a discount. There's no question that artificial intelligence (AI) stocks have led the charge in the current bull market, but in recent months, that leadership seems to be fading. Some investors even see a potential AI bubble emerging as valuations have arguably gotten ahead of business growth. Plenty of AI stocks trade down from their recent peaks, and the Nasdaq Composite, the tech-heavy index, hit an intraday peak on July 11. The index is down 5.5% from that peak after a recent recovery. Similarly, the VanEck Semiconductor ETF, which is led by the chip stocks that are key in the AI rally, is down 18% from its peak on the same day. Investors got rattled by concerns that big tech companies are overspending on AI, fears of a recession, and questions about when AI will truly breakthrough into mainstream technology, in a similar way to the past transformations like the internet and mobile technology. Despite those concerns, sell-offs like these can offer opportunities to investors. On that note, let's take a look at two AI stocks to buy on the dip. Nvidia (NVDA -1.92%) is an obvious choice at this early stage of the AI boom. And yet Nvidia stock has pulled back 17% from its peak in June, even as the company delivered another round of strong results in its second-quarter earnings report at the end of August. Additionally, there are plenty of other signs that show that demand for Nvidia's products continues to surge. CEO Jensen Huang said just last week that the company is under tremendous pressure to deliver for its customers, as so many businesses are relying on its technology. Additionally, big tech companies continue to insist that they're prepared to spend whatever it takes to be a leader in generative AI technology, which means continuing to buy from Nvidia. Oracle founder Larry Ellison recently told investors that he and Tesla CEO Elon Musk spent a dinner begging Nvidia CEO Jensen Huang for more graphics processing units (GPUs), saying, "Please take our money." Nvidia stock might look expensive at a price-to-earnings ratio of 55, but the business is still growing rapidly, with revenue more than doubling year over year in its most recent quarter. With strong growth expected to continue over the coming quarters, it's worth buying Nvidia at a discount. One of the strongest economic moats in AI belongs to ASML (ASML -2.21%), the leading lithography equipment manufacturer. In other words, ASML makes the machines that chip manufacturers like Taiwan Semiconductor Manufacturing and other foundries use to make chips. ASML is the only company that currently makes extreme ultraviolet lithography systems (EUV), the most advanced chip manufacturing technology, which is used to make chips with nodes as small as 2 nanometers. The company's results tend to be volatile from quarter to quarter as it sells a small number of very expensive machines. It expects a cyclical rebound in demand for its machines in the second half of 2024 and into 2025, calling 2024 a transition year with "investment in both capacity ramp and technology." It also expects AI to drive the industry's recovery. For the third quarter, ASML management sees revenue improving sequentially from 6.2 billion euros to 6.7 billion-7.3 billion euros, which represents a return to year-over-year growth. While concerns about export controls restricting shipments to China have weighed on the stock in recent weeks, the future of the chip fab industry looks brighter than ever, with new foundries planned in the U.S., Europe, and Japan. The CHIPS Act is also allocating tens of billions of dollars to new chip plants in the U.S. so chip production can be diversified away from areas where China can potentially disrupt production (like Taiwan). ASML is likely to be one of the biggest beneficiaries of the CHIPS Act. ASML stock trades down 28% from its peak in July. However, with revenue growth on the rebound and a boom in chip manufacturing shaping up, ASML looks like a smart buy, even with new China chip export restrictions in place.
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2 Top Tech Stocks to Buy Right Now | The Motley Fool
Historically, technology has been a ripe field to look for monster winners in the stock market. The Nasdaq-100 Technology Sector index returned 411% over the last 10 years (including dividend reinvestment), blowing away the blue chip-heavy Dow Jones Industrial Average's return of 205%. There are exciting opportunities in technology as enterprises scramble to implement artificial intelligence (AI) in their operations. Here are two profitable tech companies that can deliver outstanding returns. The data center market is exploding. Dell'Oro Group forecasts spending on AI-related infrastructure in the cloud and data center markets to grow 24% per year over the next five years. This is a monster opportunity for Nvidia (NVDA -1.92%), the leading supplier of AI chips. Nvidia's revenue more than doubled over the last year. Its graphics processing units (GPUs) are used by every major cloud service provider, and it has a large base of millions of developers and AI researchers using its accelerated computing platforms to build AI applications. Nvidia has built a reputation for high performance in the GPU market over the last 20 years, and that should serve the company and its shareholders well in the AI era. Nvidia is profiting big time off its AI chip lead. It generated $46 billion in free cash flow on $96 billion of revenue over the last year, which has sent the stock soaring, but the company's run is not over just yet. Data centers are turning to Nvidia's chips to speed up the training of AI models. Faster training means lower computing and energy costs, which is why data center spending is not showing signs of slowing down. The power these data centers require could increase by 160% by 2030, according to Goldman Sachs. Nvidia could see more growth in its data center segment as it addresses this need. Nvidia's Blackwell computing platform launching later this year will help companies bring generative AI applications to market faster while reducing energy consumption up to 25 times over the previous generation. Analysts expect Nvidia to grow earnings at an annualized rate of 36% over the next several years. That's more than enough for shareholders to double their money by 2029. Alphabet's (GOOGL 0.31%) (GOOG 0.33%) Google is one of the most valuable brands in the world, and it is rolling out AI across all its products which could benefit its growth prospects. Alphabet reported strong financial results over the last year as the digital ad market recovered. Revenue grew 14% year over year in Q2, up from the year-ago quarter's 7% growth rate. Google continues to invest in improving its products with new versions of its Gemini AI models while still posting a solid 25% year-over-year increase in operating income. Google's dominance in Search helped it bring in $64 billion in advertising revenue last quarter -- a year-over-year increase of 11%. AI should drive more usage of Google's products and grow its ad revenue over the long term. For example, the new AI Overview feature has already helped millions of users get answers to topics. Google has found that people who use AI Overview tend to use Search more frequently. While analysts expect earnings to grow at double-digit rates over the long term, the stock continues to trade at a relatively low price-to-earnings ratio against those growth expectations. One reason for this is government scrutiny over Alphabet's dominance. The company recently lost an antitrust case over anticompetitive behavior. But this doesn't take away from Alphabet's advantages in having quality data to train AI models, in addition to enormous cash resources and billions of users across its products. The stock's modest valuation is too attractive to pass up. Analysts expect the company to post 14% earnings growth in 2025, which is more than enough to justify a modest forward P/E of 18. Investors should earn magnificent returns over the next five years.
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As the stock market enters a bullish phase, tech stocks are gaining attention. This article explores innovative companies poised for growth, with a focus on artificial intelligence and cloud computing leaders.
As the stock market shows signs of entering a bull market, investors are turning their attention to innovative tech stocks that could lead the charge. With the S&P 500 up significantly from its October 2022 lows, many analysts believe we're witnessing the early stages of a prolonged bull run 1.
Among the most promising sectors, artificial intelligence (AI) stands out as a game-changer. Companies at the forefront of AI development are attracting significant investor interest. Notably, Nvidia has emerged as a frontrunner, with its stock price soaring over 200% year-to-date, driven by the increasing demand for its AI-focused GPUs 3.
Two tech behemoths, Microsoft and Amazon, are positioning themselves as leaders in both AI and cloud computing. Microsoft's Azure cloud platform has been gaining market share, while its partnership with OpenAI has bolstered its AI capabilities 2. Amazon, with its dominant AWS cloud service, continues to innovate in AI and machine learning, making it a strong contender in the tech space 4.
While tech giants dominate headlines, smaller innovative companies are also making waves. UiPath, a leader in robotic process automation, has been expanding its AI capabilities and showing strong revenue growth. Similarly, Datadog, with its observability platform for cloud-scale applications, has been impressing investors with its consistent performance and expanding customer base 1.
The current bull market is characterized by a shift in investor sentiment towards growth stocks, particularly in the tech sector. This trend is fueled by advancements in AI, cloud computing, and other emerging technologies. However, investors are advised to maintain a balanced portfolio and consider the high valuations of some tech stocks 2.
As the tech sector continues to evolve, companies that can innovate and adapt to changing market demands are likely to outperform. The integration of AI across various industries, the expansion of cloud services, and the development of new technologies present significant growth opportunities for well-positioned tech companies 4.
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