AI Stocks Surge: Investors Eye Opportunities Amid Market Shifts

2 Artificial Intelligence (AI) Stocks to Buy After a Tech Market Sell-Off | The Motley Fool

These companies have enjoyed significant growth from AI and likely have much more to offer investors in the coming years. Artificial intelligence (AI) is by no means a new technology. The term was first coined by mathematician and computer scientist Alan Turing in 1950. Since then, the generative technology has appeared in one form or another for decades. However, advances in tech have only recently made it possible for companies to bring the true concept of AI into reality. The launch of OpenAI's ChatGPT in November 2022 breathed new life into the industry, forcing many to rethink what they thought was currently possible with AI. As a result, interest has skyrocketed as companies across tech have rushed to get in on the ground floor. The Nasdaq Composite index has climbed 68% since the start of 2023, driven primarily by excitement over AI. However, macroeconomic concerns have led to a drop in the market over the last month, bringing the same index down by about 4%. Yet, recent declines are likely temporary, with many tech giants continuing to enjoy solid financial gains from their respective AI offerings. As a result, now could be an excellent time to invest in the market before it's too late. So, here are two AI stocks to buy after a tech market sell-off. Advanced Micro Devices (AMD 0.72%) stock has fallen about 1% since the start of 2024, brought down by a challenging start to the year as it has faced steep competition from Nvidia and a general pullback from tech investors. However, recent declines have increased the value of its stock, making it a no-brainer investment for those in it for the long haul. This chart shows AMD's forward price-to-earnings ratio (P/E) and price-to-sales ratio are below their 12-month averages. The figures indicate AMD is trading at one of its best values in months, making now an excellent time to invest in its AI potential. Since the start of last year, AMD has unveiled a range of new AI products as it worked to catch up to market leader Nvidia. On June 3, CEO Lisa Su said about the company's ambitions, "AI is our number one priority, and we're at the beginning of an incredibly exciting time." During the same keynote at the Computex conference in Taipei, the company debuted its Ryzen AI 300 series of central processing units (CPUs) for laptops and its Ryzen 9000 CPUs for desktops. AMD also revealed its data-center chip roadmap, announcing its Instinct MI325X AI accelerators, set to release in the first quarter of 2024, the MI350 series for 2025, and the MI400 for 2026. Meanwhile, AMD is already making promising headway in AI, illustrated by a 115% jump in revenue in its data-center segment in Q2 2024. The company has attracted prominent names to its list of AI chip customers, including Amazon, Microsoft, and Alphabet (GOOG 0.33%) (GOOGL 0.31%), which strengthen its position in the sector. AMD is on an exciting growth path, making its stock a no-brainer after a sell-off. Alphabet's stock is up 23% year over year yet has tumbled 13% over the last month. The company suffered a market downturn that has affected dozens of tech stocks. Yet, Alphabet remains a behemoth in the industry with an expanding role in AI that makes its stock a compelling investment. The tech giant has had its work cut out for it, with the third-largest market share in cloud computing after Amazon Web Services and Microsoft's Azure. However, Alphabet has made impressive strides over the last year, adding a range of new AI tools to Google Cloud that have allowed it to outperform its competitors in growth. In Q2 2024, Alphabet posted revenue gains of 13% year over year, mainly driven by a 29% spike in Google Cloud sales. Meanwhile, Google Cloud's operating income nearly tripled to more than $1 billion for the first time. For reference, AWS and Azure revenue both rose 19% year over year in the same quarter. In addition to cloud computing, Alphabet is using its Pixel smartphone brand to further its position in AI. The company unveiled the Pixel 9 on Aug. 13, debuting it alongside a new Gemini-powered AI smart assistant. Gemini AI uses Alphabet's large language model (LLM) to offer Pixel 9 users new generative image, text, and voice features. The announcement came ahead of Apple's iPhone event in September, which is expected to similarly announce a range of new AI features for its 2024 line of smartphones. Alphabet's stock is trading at a bargain after a sell-off. The chart above shows its forward P/E is significantly lower than Microsoft's or Amazon's, indicating that Alphabet is one of the best-valued AI cloud stocks in the market. Alongside impressive growth in AI and a potent brand, Alphabet's stock is too good to ignore right now.

3 Artificial Intelligence (AI) Companies to Watch Amid the Tech Stock Sell-Off | The Motley Fool

Market downturns are rare opportunities to buy excellent stocks that rarely come cheap. Stocks generally don't move in a straight line. Yes, countless technology and artificial intelligence (AI) stocks have enjoyed a pretty straight path to higher prices since the beginning of last year. But recent volatility has reminded investors that even AI stocks are prone to a sell-off. Are you a long-term investor looking to own great stocks for years at a time? If so, a sell-off is a gift! There are businesses behind every stock. Buying cheaper shares means you're more likely to enjoy better investment returns as these businesses grow. Unfortunately, I can't tell you if the recent sell-off will worsen. Nobody knows what stocks will do in the short term. But I can give you a list of top-tier AI stocks. Consider scooping these three up if the sell-off continues: AI's long-term potential could depend on how companies utilize it in their existing businesses. Palantir Technologies (PLTR 1.31%) arguably stands out as the company making the most headway in that regard. Palantir develops custom software applications that analyze data and provide real-time outputs. The use cases range from optimizing operations inside hospitals to helping the military conduct complex missions. This highly diverse technology creates broad appeal and shows up in Palantir's business results. Palantir's revenue growth has accelerated since the company launched its Artificial Intelligence Platform (AIP) last year. Revenue from private sector U.S. customers grew 55% year over year in the second quarter, but the remaining value on those deals (booked but not yet recognized) more than doubled. The company's U.S. customer count rose to 295, an 83% increase from a year ago and a 13% increase from the prior quarter. This data points to building growth momentum as companies flock to Palantir for help tapping into AI technology. Analysts believe this momentum will help Palantir grow earnings by an average of 30% annually for the next three to five years. Unfortunately, Palantir's forward P/E of 87 already reflects much of that exciting growth. Investors should keep Palantir atop their shopping list if volatility knocks the stock down a peg or two. Running AI models requires serious computing power, which has sparked intense demand for AI chips. Nvidia has been a big winner, but investors should look at Taiwan Semiconductor (TSM 0.52%). You see, Nvidia and most other semiconductor companies don't manufacture the chips they sell. Instead, they go to a fabricator, a company that manufactures semiconductors. Taiwan Semiconductor is the world's leading chip fabricator, manufacturing 61% of the global chip supply. As the largest fabricator, Taiwan Semiconductor has an inside track to winning opportunities to manufacture advanced chips, such as those powering Apple's iOS devices and Nvidia's coveted AI chips. The AI boom revved Taiwan Semiconductor's revenue growth to nearly 33% year over year in Q2. The global semiconductor market is estimated to grow by 8.8% annually for the next decade, directly benefiting the world's top chip fabricator. Analysts believe Taiwan Semiconductor will grow earnings by 26% annually over the next three to five years. Geopolitical tensions between Taiwan and China are Taiwan Semiconductor's most significant risk. This could explain the stock's cheap valuation; its forward P/E of 26 is arguably a bargain, considering its anticipated growth. The risks are legitimate, but the stock might become too cheap to ignore if a sell-off takes it even lower. One could say that investing in Arm Holdings (ARM 1.54%) is like collecting a royalty on technology. The company designs architecture for central processing units (CPUs), which act like the brain for most electronic devices. Arm-based chips operate mobile phones, personal electronics, vehicles, factory equipment, cloud computing, and more. Arm has an estimated 50% global market share and is rising across most end markets. The company earns royalties and fees on every chip built on its designs, making it remarkably profitable with an over 95% gross margin. Artificial intelligence is poised to be huge for Arm; management estimates more than 290 billion Arm-based chips have shipped since the company's inception. Keep in mind that Arm goes back to 1990. Arm believes 100 billion AI-equipped Arm chips will ship by the end of its fiscal year 2026. That's about a third of its historical volume over the next several years. Translation: AI is creating tremendous growth at Arm. Analysts believe Arm's earnings will grow by 25% annually during that time (the next three to five years). The stock's only drawback is its valuation; shares trade at a forward P/E of 80. That's probably too steep for most investors despite such strong growth. Like Palantir, Arm Holdings is a tremendous stock priced to perfection today. Keep Arm on your radar and be ready to take advantage of any sell-off.

2 Recent Artificial Intelligence (AI) Stock-Split Stocks to Buy During the Nasdaq Sell-Off | The Motley Fool

Remember that stock splits lower the share price but offset that by increasing the number of shares. In other words, stock splits don't fundamentally change a stock's valuation. However, a sell-off, like what investors saw recently in the Nasdaq, can. Even though the market has bounced back, these two (AI) winners remain below their highs. If the Nasdaq continues to sell off, both stocks would be excellent buys for long-term investors. Here is why. No company has enjoyed more AI-driven success than Nvidia, whose graphics processing units (GPUs) have become the primary choice for data centers running complex AI models. Its proprietary CUDA software helps customers unlock the full power of its GPU chips, making them perfect for AI. The tech industry's power players are in an arms race to build the computing resources needed to support AI growth. That strong demand launched Nvidia's revenue to new heights starting in 2023. The AI and cloud heavyweights intend to keep spending. Microsoft said in its latest earnings call that AI demand outstripped its available computing resources. Meta Platforms CEO Mark Zuckerberg recently said in a "fireside chat" with Nvidia CEO Jensen Huang that his company has accumulated nearly 600,000 of the latter's H100 chips and will invest more next year to support AI. The CEO of Nvidia competitor Advanced Micro Devices believes the broader AI chip market will grow to $400 billion over the next several years. Nvidia, the market leader, only sells a fraction of that today. The signs point to sustained demand, and the company wants to protect its market share by frequently releasing cutting-edge chips to keep pace with innovation. Revenue probably won't continue growing by triple digits, but analysts believe Nvidia will grow earnings by 36% annually over the long term. Assuming Nvidia delivers on estimates, the stock looks like a bargain today at a forward price-to-earnings ratio (P/E) of 44, which is attractive for such a fast-growing business. But the company will face competition from other chipmakers and big-tech customers that could try to build their own chips. So, while the stock could look cheap in hindsight if things go well, investors should welcome any sell-off that will build a margin of safety to account for the unknowns. Broadcom has been an excellent stock for AI investors looking for diversification. It specializes in semiconductors for networking and communications and has another business unit that provides infrastructure software to enterprises. Total revenue is split roughly 2-to-1 between its semiconductor solutions and infrastructure software. Semiconductor stocks are cyclical. AI has created a boom in chip spending, but that will likely slow at some point as AI capacity catches up to demand. Broadcom isn't growing as fast as Nvidia is, but the software business generates recurring revenue that could make the company less volatile over the long term. That said, Broadcom is getting a big push from AI; just like how AI models require powerful processing chips, they also create heavy networking loads that need similarly AI-specialized hardware. The company initially guided that AI would contribute 25% of its semiconductor solutions revenue in 2024 but increased that to 35% in the second quarter. Meanwhile, adding VMware to the software business helped Broadcom's total revenue grow 43% year over year in the second quarter. Organic revenue growth (excluding the acquisition) was still 12%. That isn't explosive, but analysts believe the company will grow earnings by 18% annually over the long term, and that's nothing to sneeze at. Broadcom doubles as an excellent dividend stock, separating it from most AI investments. The starting yield isn't huge, just 1.3%, but management has raised its payout by an average of 19% annually over the past five years. The stock offers investors a bit of everything: AI upside, dividends, and a diversified business that might hold up better during a sell-off. Shares trade at a forward P/E of 33 today, which isn't shockingly expensive, but it's not cheap, either. Investors can confidently buy and hold Broadcom if the Nasdaq sells off and takes the stock lower with it.

Warren Buffett Just Dumped Half of His Apple Stock. 3 AI Stocks That Are Likely Better Investments | The Motley Fool

Some AI stocks offer higher growth potential while mirroring the Buffett investment philosophy. The news that Warren Buffett's Berkshire Hathaway sold 389 million of its Apple shares sent shock waves across the stock market. While one could argue that Buffett's Apple stake is still too large relative to Berkshire's overall portfolio, it was still a notable move by any measure. The stock sale leaves Berkshire with over $271 billion in cash. Amid that move, Buffett's team introduced some new positions. It also invested considerable funds in short-term bonds, where they may stay for the foreseeable future. However, that still leaves the company open to finding more lucrative investments than Apple, and these artificial intelligence (AI) stocks could bring higher returns. Jake Lerch (Monday.com): Let start with the basics -- what Monday.com (MNDY 2.51%) does. In a nutshell, Monday.com provides organizations with cloud-based workflow management tools. Its systems can be custom-designed to integrate proprietary applications and use generative AI to drive operational efficiency. Moreover, the platform's ease of use is a major selling point. The system operates on a "no-code/low-code" principle in which little technical expertise is required to build time-saving workflows. Thanks to the popularity of its platform, Monday.com is attracting customers and business is booming. Almost all of Monday.com's revenue comes in the form of subscriptions -- a more steady and predictable form of revenue compared to one-off sales. In its most recent quarter (ended June 30, 2024), Monday.com reported revenue of $236 million, up 34% year over year. What's more, large customers (those paying more than $50,000 in annual recurring revenue) increased 43% from a year earlier. Finally, and perhaps most importantly, the company crossed a key threshold for any growth stock -- GAAP profitability. Monday.com CFO Eliran Glazer summed up the quarter like this: "Most notably, we were able to deliver exceptional efficiency in Q2, achieving our first quarter of GAAP operating profitability. These results demonstrate not only our highly effective execution, but the strong demand we continue to see even through a challenging macroeconomic environment." Granted, Monday.com, like all growth stocks, comes with certain risks. The company has turned in a profitable quarter -- but it was a very meager profit of only $1.8 million. As the company continues to focus on growing revenue, it's possible that profit will take a backseat. In addition, an economic downturn -- or a recession -- would spell bad news for the company. However, for many investors, Monday.com is a stock worth considering thanks to its rapidly growing customer base, fast revenue growth, and newfound profitability. Justin Pope (SentinelOne): SentinelOne (S 2.50%) is a rising star in the cybersecurity field. The stock was building momentum after CrowdStrike's outage fiasco until recent volatility among small- and mid-cap stocks dragged shares from $30 back into the low $20s. But the stock's gains were no fluke; SentinelOne is a compelling long-term investment for shareholders looking for growth at a bargain price. Let's unpack this. SentinelOne sells cybersecurity solutions via its Singularity Platform. It uses artificial intelligence (AI) instead of human agents to identify and deal with potential threats. The result is proactive, autonomous security that performs among the best products on the market. SentinelOne routinely receives high scores in third-party evaluations and has an average of 4.7 stars out of five on Gartner's Peer Insights, which tracks feedback from verified users. SentinelOne offers high-octane growth momentum, including 39.7% year-over-year revenue growth in its latest quarter. The company's ability to launch and sell new products is impressive. SentinelOne recently launched a data lake product and AI Purple, a generative AI that assists users with security operations. Emerging products contributed 40% of new bookings in SentinelOne's latest quarter, including data lake sales growing over 100%. Growth is great, but SentinelOne has lacked profits, which is a fair criticism and arguably what has held the stock back these past couple of years. But it is making tremendous strikes there, too. The company's free-cash-flow margin turned positive last quarter, jumping to 18% of sales. The company is well-funded, with $773 million in cash against no debt. Investors shouldn't worry about SentinelOne's durability, even in a potential recession. The stock's cheap valuation pulls the investment pitch together. SentinelOne has lagged behind its cybersecurity peers, including CrowdStrike. CrowdStrike's current valuation, an enterprise value-to-sales ratio of 15, exceeds SentinelOne's ratio of under 8, even after CrowdStrike's recent black eye. SentinelOne's valuation could stay where it is, and investors are still poised to make out, given the company's rampant growth and improving profitability. SentinelOne looks like a no-brainer in a market that's lacking bargains these days. Will Healy (Super Micro Computer): One of the more notable AI stocks to emerge over the last few years is Super Micro Computer (SMCI -0.82%). The manufacturer of servers and other hardware spent most of its 30-year history in obscurity, with few outside of the industry knowing of the company. Despite launching its IPO in 2007, the stock did not take off until the pandemic, when the sudden need to move to the cloud stoked demand for its servers. However, what catalyzed the massive surge in the stock was partnering with Nvidia and placing that company's AI chips in its servers. These industry trends helped lead to stock gains of around 3,500% over the last five years and a coming 10-for-1 stock split. However, what should attract the attention of Buffett and other bargain hunters is the gain, which was as high as 6,900% at Supermicro's peak closing price on March 13. This means that the stock has lost about 50% of its value over the last five months. The decline was likely a reaction to the rapid rise in the stock price, particularly over the last year. Despite the sell-off, net income rose 89% yearly to $1.2 billion in fiscal 2024 (ended June 30) amid unprecedented demand for its AI servers. Moreover, between the rising profits and falling stock price, its valuation has become reasonable by just about any measure. Although the P/E ratio briefly topped 90 in March, its earnings multiple is now 30, a level barely above the average S&P 500 earnings multiple of 28. Furthermore, while the company did not forecast net income for fiscal 2025, consensus analyst estimates call for a 58% increase in net income, a bullish sign for the stock. Indeed, with its rapid but slowing growth rates, investors may not bid the stock back to 90 times earnings. But with income growth above 50%, Supermicro is on track for rising profits and multiple expansion.