AI Stocks Remain Attractive Despite Recent Tech Sell-Off

The Recent Tech Sell-Off Made These 2 Artificial Intelligence (AI) Stocks Even Better Buys | The Motley Fool

Investors looking to add potential AI winners trading at attractive valuations should examine these two names closely. Artificial intelligence (AI) has given many technology companies a big boost since ChatGPT gained immense popularity toward the end of 2022. Still, it hasn't been smooth sailing in recent months as doubts are being raised about the potential of this technology to deliver financial returns in lieu of the massive investments that are being made in AI infrastructure. Throw in the inflated valuations following the tremendous surge in tech stocks in the past year and a half thanks to AI, and it is easy to see why Citigroup advised investors last month to book profits in high-flying AI stocks. All this explains why the Nasdaq-100 Technology Sector index has retreated close to 2% in the past month. However, this sell-off means investors can now buy certain AI stocks at attractive valuations. Let's take a closer look at two such names. Shares of Micron Technology (MU 0.75%) are down nearly 10% in the past month. What's more, the stock has lost more than 35% of its value in the past three months. Now, investors can buy Micron stock at an attractive 5 times sales, a discount to the U.S. technology sector's sales multiple of 8. The stock's forward earnings multiple of 12 also represents a big discount to the Nasdaq-100 index's forward earnings multiple of 30 (using the index as a proxy for tech stocks). Investors should consider buying shares of this memory specialist hand over fist at its current valuation because of the outstanding growth in its top and bottom lines. The chipmaker's revenue in the third quarter of fiscal 2024 (which ended on May 30) shot up a remarkable 81% from the same quarter last year to $6.8 billion. Micron also swung to a non-GAAP profit of $0.62 from a $1.43 per share loss in the year-ago period. It has now guided for revenue of $7.6 billion for the current quarter, along with adjusted earnings of $1.08 per share. Based on the guidance and its revenue in the first nine months of the year, Micron's fiscal 2024 revenue should end up at $25 billion, a 61% jump over the previous fiscal year. Additionally, it is expected to post a profit of $1.22 per share, compared to a loss of $4.45 per share in fiscal 2023. These terrific numbers suggest that the sharp pullback in Micron's stock of late doesn't seem justified. That's especially true considering its revenue in the upcoming fiscal year could jump a solid 54% to $38.5 billion, as per consensus estimates. Even better, the company's earnings are forecasted to multiply in fiscal 2025 to $9.44 per share. Such outstanding growth in Micron's revenue and earnings will be driven by an AI-fueled recovery in the memory market. AI is positively impacting the memory market in multiple ways. From the booming demand for high-bandwidth memory (HBM), which is deployed in AI graphics processing units (GPUs) to the increasing memory content in computers and smartphones, it is easy to see why the memory market is set to enjoy massive growth. Sales of memory chips are expected to jump from $92 billion last year to $163 billion this year, an increase of 77%. The market's growth is expected to continue in 2025, with its overall size hitting $204 billion. Not surprisingly, Micron is expected to deliver outstanding growth in its revenue and earnings. Given the valuation it is trading at, investors would do well to buy it before its fortunes turn around. Snowflake (SNOW 2.31%) is another company that has witnessed a significant pullback in its stock price of late, dropping 24% in the past three months. The stock was clobbered recently after Snowflake released fiscal 2025 second-quarter results on Aug. 21. However, a closer look at Snowflake's strategy of introducing AI-specific products to customers using its data cloud platform is likely to help accelerate its growth in the future. Snowflake's cloud-based data platform allows customers to consolidate their data onto a single platform. They can then use that data to build applications, derive insights, or use AI to solve problems. The company is set to offer multiple AI applications to customers under its Cortex AI platform. From allowing customers to quickly locate information within their data set with the help of generative AI to giving them access to popular large language models (LLMs) so that they can build applications with their proprietary data without having to invest in expensive infrastructure, Snowflake seems to be doing the right thing to ensure that it can drive greater customer spending. Market research firm IDC projects that the demand for AI software platforms could grow at an annual rate of 40.6% through 2028 as organizations find ways to integrate AI within their business and develop and deploy AI applications. The good part is that Snowflake's focus on offering AI services drives outstanding growth in its remaining performance obligations (RPO). The company's RPO increased an impressive 48% year over year last quarter to $5.2 billion. That was higher than the 29% year-over-year growth in Snowflake's revenue during the quarter to $869 million. A company's RPO refers to the total value of its future contracts at the end of a period, so the faster growth in this metric, when compared to the actual growth in its top line, suggests that its revenue growth could accelerate in the future. AI seems to be playing an essential role in boosting the growth of its RPO. Snowflake points out that more than 2,500 of its customers use its AI services weekly. That's impressive considering that Snowflake ended the previous quarter with just over 10,000 customers and it started rolling out AI-enabled services toward the end of 2023. So, as more Snowflake customers start using its AI services, there is a good chance that its revenue pipeline could keep improving and lead to stronger growth in the future. That's why investors looking to add an AI software play to their portfolios should take a closer look at Snowflake as it trades at 12 times sales following its recent pullback, a discount to its five-year average sales multiple of 31.

1 Artificial Intelligence (AI) Stock to Buy Hand Over Fist Amid the Sell-Off | The Motley Fool

The designer and maker of computer memory chips is not profitable on a trailing-12-month basis. That's true for Micron's free cash flows, too -- they have been negative over the last four quarters. Trailing sales are down 34% from the all-time highs seen in the summer of 2022. And investors don't seem thrilled about these financials, either. Micron's stock price is down 39% from its all-time high reached two months ago. The company's stock chart looks like an extra-volatile version of tech-sector trackers like the Invesco QQQ Trust (QQQ -1.14%) over the last five months -- and that's not a compliment: But here I am, recommending Micron as a great buy in August 2024. The company is unprofitable, sales are down, and the stock price is crashing. How could this confluence of bearish signs add up to a "buy" signal? There's more to Micron's story. Let me show you. Micron's sales and profits have indeed dipped very low recently. Starting from the third fiscal quarter of 2022, trailing revenues fell more than 27% over the next five quarters. Adjusted earnings per share dipped to a negative $6.05 per share, and the annual cash born topped out at $6.1 billion. Ouch. And that's supposed to be a leading hardware provider in the middle of an explosive boom in the artificial intelligence (AI) market? That's a hard pass for some investors, but I think it's a big mistake to stop your Micron analysis there. You see, Micron is absolutely tapped into the AI opportunity. Computer systems built for training advanced AI software require lots of memory. So do the systems that deliver consumer-friendly (or enterprise-ready) AI services when the training is done. And you know what your smartphone needs if you want it to deliver AI services without a cloud computing hub? That's right -- plenty of memory! For example, the base model of Alphabet's (GOOG -1.13%) (GOOGL -1.11%) Pixel 9 phone comes with several AI features, including the Gemini voice assistant and photo-finishing tools. It also carries 12 gigabytes of RAM, up from 8 gigabytes in last year's less AI-packed Pixel 8. That's an above-average memory increase -- the Pixel 8 had the same memory setup as the ancient Pixel 5, which Alphabet released in the fall of 2020. The latest wave of AI-enabled flagship phones is expected to inspire a large number of upgrades from older, AI-less handsets. The combination of more phone sales and more memory per phone should give Micron a massive revenue boost -- and that's just the smartphone piece of the AI puzzle. The AI-powered surge is already underway. Micron operates in a highly cyclical industry, and it's high time for another upswing. The only type of market timing I recommend is keeping an eye open for great companies with low share prices, and that's where you'll find Micron today. The stock is changing hands at the bargain-bin valuation of 9.8 times forward earnings estimates, and that's based on consensus projections from a group that tends to set Micron's earnings bar too low. I expect impressive results from Micron as the AI boom plays out, and the stock is on fire sale today. You should consider grabbing a few shares of this high-quality semiconductor stock on the cheap.

Here Are My Top Artificial Intelligence (AI) Stocks to Buy Right Now | The Motley Fool

Investors looking to buy AI stocks that aren't expensive but have solid growth potential should take a closer look at these two names. Artificial intelligence (AI) has been a driving force for many technology companies for nearly two years now, which explains why the Nasdaq-100 Technology Sector index has clocked outstanding gains of 78% since November 2022, and the good part is that the proliferation of this technology is still in its early stages. It is estimated that the global AI market was worth an estimated $136 billion last year. By 2030, the size of this market is expected to hit nearly $827 billion. That's why buying and holding solid AI stocks for the long run could turn out to be a smart move for investors looking to get richer. Here's a closer look at two such companies that are on track to benefit from the adoption of AI in different areas. More importantly, both companies' stocks trade at reasonable valuations, which is why they look like solid buys right now. As companies and governments focus on harnessing the power of AI, the demand for software that's capable of helping them integrate this technology into their operations is going to grow rapidly in the future. S&P Global Market Intelligence forecasts that the market for generative AI software could clock a compound annual growth rate (CAGR) of 58% through 2028, generating annual revenue of $52 billion at the end of the forecast period as compared to $5.1 billion last year. The company points out that organizations are putting more resources into generative AI software to improve their operational efficiency and drive innovation within their businesses. This is probably why the demand for C3.ai's (AI -2.25%) generative AI software is on the rise. The company's revenue increased 16% in fiscal 2024 (which ended in April this year) to $310.6 million. C3.ai is forecasting $382.5 million in revenue in the current fiscal year. That would be a 23% increase over fiscal 2023 levels and points toward a nice bump in the company's growth rate. C3.ai's improving growth profile can be attributed to the growing number of customers opting to use the company's enterprise AI software offerings. C3.ai not only provides ready-to-use applications to enterprise customers, but it also offers development tools so that they can make custom AI applications. It also offers a software platform through which its customers can build, launch, and operate generative AI applications for their particular use cases. C3.ai also offers its AI software solutions through multiple cloud computing partners such as Google Cloud, Amazon Web Services, and Microsoft Azure. In fiscal 2024, the number of agreements that C3.ai struck increased by an impressive 52% from the previous year to 191. The company's partner network played a central role in that growth as 115 agreements came through this channel, an increase of 62% from the previous year. More importantly, C3.ai points out that the pipeline of qualified leads through its partner network was up by 63% last year. All this points toward a bright future for C3.ai, which is probably the reason why consensus estimates expect its bottom line to increase at a compound annual growth rate of almost 51% for the next five years. So, C3.ai could turn out to be a top AI pick in the long run, which is why investors would do well to buy it right away. The stock is currently trading at 9 times sales, which isn't all that expensive when compared to the U.S. technology sector's average price-to-sales ratio of 8. The company isn't profitable yet, but it is forecasted to be in the black in a couple of years. That won't be surprising considering the potential acceleration in C3.ai's growth, which could send shares of this company soaring in the future. The recovery in the global smartphone market thanks to the advent of generative AI-enabled devices is turning out to be a tailwind for Qualcomm (QCOM -1.20%). This was evident from the company's fiscal 2024 third-quarter results (for the three months ending June 23). The semiconductor specialist, which gets a big chunk of its revenue from selling smartphone chips, saw its overall revenue increase 11% year over year to $9.4 billion. Adjusted earnings, meanwhile, jumped 25% year over year to $2.33 per share. The chipmaker anticipates $9.9 billion in revenue in the current quarter at the midpoint of its guidance range, which would be a 14% jump over the prior-year period. Qualcomm's adjusted earnings are also on track to increase by 26% on a year-over-year basis. The guidance suggests that Qualcomm's growth is set to pick up, and that's a trend that could continue for a long time to come considering the huge opportunity in AI smartphones. Market research firm IDC is forecasting a whopping 336% jump in sales of generative AI smartphones this year to 234 million units. By 2028, IDC expects generative AI smartphone shipments to jump to a whopping 912 million units annually. Qualcomm will be one of the biggest beneficiaries of this secular growth trend as 63% of its revenue comes from selling smartphone processors. The company controls an estimated 23% of the global smartphone application processor market as per Counterpoint Research, and its chips are being used by major smartphone original equipment manufacturers (OEMs) such as Samsung to power generative AI smartphones. The generative AI opportunity is one of the reasons why analysts seem to have increased their earnings growth expectations from Qualcomm in recent months. However, the company's bottom line is now growing at a 20%-plus rate, so it won't be surprising to see it outpacing consensus estimates. That's why buying Qualcomm stock right now looks like a no-brainer as it is trading at just 22 times trailing earnings and 15 times forward earnings, a nice discount to the U.S. technology sector's average earnings multiple of 46.

2 Stock-Split AI Stocks Up 455% and 1,150% in 3 Years to Buy Now, According to Wall Street | The Motley Fool

Chipmaker Nvidia (NVDA -6.39%) has been one of the biggest winners of the artificial intelligence (AI) boom. Its share price has increased 455% since August 2021, making it the second-best performing stock in the S&P 500 (^GSPC -0.00%) during the last three years. The company completed a 10-for-1 stock split in June to make shares more affordable. Server manufacturer Super Micro Computer (SMCI 1.20%) has been an even bigger beneficiary of the AI boom. Its shares price has surged 1,150% since August 2021, making it the best-performing stock in the S&P 500 during the last three years. The company will reset its share price with a 10-for-1 stock split in September. Generally speaking, Wall Street analysts believe both stocks will be profitable investments during the next 12 months. Nvidia has a median price target of $145 per share, implying 24% upside from its current share price of $117. And Super Micro has a median price target of $693 per share, implying 56% upside from its current share price of $443. Here's what investors should know about these AI stocks. Nvidia reported blockbuster financial results in the second quarter of fiscal 2025 (ended July 2024). Revenue increased 122% to a record $30 billion on particularly strong growth in the data center segment. Gross profit margin expanded 450 basis points, and non-GAAP earnings soared 152% to $0.68 per diluted share. CEO Jensen Huang said, "Spectrum-X Ethernet [networking] for AI and Nvidia AI Enterprise software are two new product categories achieving significant scale, demonstrating that Nvidia is a full-stack and data center-scale platform." Nvidia is best known for its graphics processing units (GPUs), chips that have become the industry standard in accelerating complex data center workloads such as training machine learning models and running artificial intelligence (AI) applications. Nvidia regularly sets performance records at the MLPerfs, objective benchmarks that measure the training and inference capabilities of AI systems. And the company holds more than 80% market share in AI chips, according to analysts. However, Nvidia is truly formidable because it offers a full-stack computing platform that spans hardware, software, and services. To elaborate, the company complements its GPUs with high-performance networking equipment and central processing units (CPUs). It also provides software and services that streamline the development of AI applications. In a recent note, Jim Kelleher at Argus wrote, "Nvidia stands out because it participates in so many parts of the dynamic AI economy." Looking ahead, Wall Street expects Nvidia's adjusted earnings to increase at 44% annually through fiscal 2026. That makes its current valuation of 53 times adjusted earnings look reasonable. Investors looking to start a position or increase their exposure to Nvidia should consider buying a few shares today. Supermicro reported mixed financial results in the fourth quarter of fiscal 2024 (ended June 30). The good news: Revenue topped estimates and surged 143% to $5.3 billion due to record demand for AI infrastructure. The bad news: Gross margin contracted 580 basis points to 11.2%, so non-GAAP earnings rose just 78% to $6.25 per diluted share. Analysts expected non-GAAP earnings to grow 132% to $8.14 per diluted share. However, management attributed the shortfall to cost associated with ramping direct liquid cooling (DLC) manufacturing capacity. While those investments are a temporary headwind, but they should pay dividends down the road. Super Micro is already the leader in AI servers, but investments in DLC technology could help the company gain market share. Liquid-cooling is more efficient than traditional air cooling, so demand for DLC solutions should increase in lockstep with demand for AI servers, simply because AI servers generate a lot of heat. Importantly, Super Micro expects its gross margin to normalize between 14% and 17% by the end of fiscal 2025 once DLC solutions start shipping in higher volume. That means profitability should improve in the coming quarters. CEO Charles Liang told analysts, "We are well positioned to become the largest IT infrastructure company." However, shareholders got hit with some bad news this week. Super Micro stock tumbled 20% on Wednesday, Aug. 28, following a report from short-seller Hindenburg Research alleging "accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures." But Samik Chatterjee at JPMorgan Chase brushed the situation aside in a recent note to clients. "We see the report as largely void of details around alleged wrong doings from the company that change the medium-term outlook." The short report from Hindenburg puts investors in a tricky position. Super Micro shares could decline further if evidence of wrongdoing comes to light. Alternatively, the stock could rebound quickly in the absence of such evidence. Personally, I think risk-tolerant investors should consider buying a very small position today. Wall Street expects Super Micro's earnings to grow at 43% annually through fiscal 2026. That estimate makes the current valuation of 20 times earnings look cheap.