AI stocks have seen an incredible amount of volatility in recent weeks. Of course, over the past year, it’s been mostly upside for any company heavily involved in the AI trend. Artificial intelligence technology, they tell us, is the next big thing. So it should be no surprise to see nearly every company mention AI on their earnings calls, perhaps a little too aggressively.
That said, it’s also true that AI is a trend that may be priced into a number of stocks to an outlandish degree. We all know what happened during the dot-com bubble. Yes, the internet was the next big thing, but valuations made no sense. The question is whether AI stock have approached this level of euphoria, and if the valuation multiple expansion we’ve seen has been correctly distributed in the market.
In my view, there are likely to be a handful of companies that will see meaningful impacts to their top and bottom lines for years to come as a result of AI. Many of the names on this list below aren’t going to surprise investors. But let’s try to dive into why these stocks may still be buys on any significant dips moving forward, and how growth investors may want to think about these names in this era of high valuations.
Key Points About This Article:
- Valuations remain extremely elevated for certain AI stocks, but there are certain companies that will disproportionately benefit from this trend over the long-term.
- These three companies could remain the best picks-and-shovels way to play the AI rally long-term, and look like solid buying opportunities on dips.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features Super Micro Computer and Palantir plus 1 more AI stock that has 10X potential in the space. The report is complimentary and available for a limited time only, so don’t delay!
Super Micro Computer (SMCI)
Super Micro Computer’s (NASDAQ:SMCI) innovation, fueled by partnerships with top chip designers like Nvidia, is set to grow. The company recently launched a new Malaysian facility aimed at reducing costs and boosting production. Its expertise in direct liquid cooling technology for data centers is driving very impressive growth, and is expected to provide continued growth over the long-term.
In early 2024, Super Micro reported $3.85 billion in sales and $402 million in net income, and its recent addition to the Nasdaq 100 has further enhanced investor interest. As a top AI stock benefiting from increased server demand, Super Micro’s status as a top picks-and-shovels play in this space had led to an incredibly high valuation to start the year.
Of course, the company’s multiple has since come down, with SMCI stock losing nearly 60% of its value from its earlier peak in March. That said, the recent AI boom should provide continued growth prospects for this company. And given the fact that Super Micro now trades at just 15-times forward earnings, it’s hard to make the argument this stock is now overvalued at around $500 per share.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) stock surged over 12% in a single day this past week, buoyed by AMD’s (NASDAQ:AMD) positive earnings and a bullish Morgan Stanley outlook. AMD’s strong results and optimistic Q3 forecast eased fears about the AI sector’s slowdown. Microsoft (NASDAQ:MSFT) also reported increased data center spending, suggesting that AI chip makers like Nvidia and AMD will benefit from rising Big Tech investments.
Nvidia set a Wall Street record with a $330 billion market value increase in a single day, surpassing its previous $277 billion record. The surge, driven by strong AI chip demand and Microsoft’s 60% boost in AI spending, lifted Nvidia’s market cap to $2.88 trillion, making it the world’s third-most valuable company.
Angelo Zino of CFRA noted that concerns about sustaining momentum and revenue growth are easing. On Wednesday, other notable semiconductor stocks like Taiwan Semiconductor, Super Micro Computer, Broadcom, and more. Wall Street analysts appear to have have underestimated and questioned Nvidia’s earnings growth sustainability, as well as the sustainability of its extremely high AI chip demand. Although the stock is experiencing a slump, Nvidia is still a good bet over the long-run. In my view, this stock represents another top picks-and-shovels play to consider adding on dips moving forward.
Palantir Technologies (PLTR)
Offering a diverse investment appeal, Palantir Technologies (NYSE:PLTR) is focused on AI and cloud innovations. The company’s growth is driven by its machine learning products that enhances data insights utilizing AI technology. Although PLTR stock saw a mixed bag of reactions after its Q1 2024 earnings report, Palantir manages to be on top with its major contract deals.
According to Precedence Research’s data, the AI software market is expected to grow 23% annually, meaning this market could surpass the $1 trillion level by 2032. Palantir is poised for expansion with its $2.3 billion in annual revenue. Moreover, its commercial revenue saw a 27% increase, while U.S commercial revenue surged 40%. Growth in AI software adoption is inevitable for Palantir.
Palantir’s AI Platform (AIP) is gaining traction due to its efficiency gains, leading to higher customer adoption and usage. These metrics signal strong future growth potential for Palantir.
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