Why did Super Microcomputer, C3.ai, and other artificial intelligence (AI) stocks rally this week?

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There is no question that one prevailing force that has been driving the market higher since last year is the development of artificial intelligence (AI). Investors' enthusiasm about the technology's potential is countered by concerns about the Federal Reserve's ongoing battle with inflation. Interest rates remain at two-decade highs, and investors are keenly interested in the timing and likelihood of the central bank starting to cut them. The central bank has indicated it is in no rush to cut the benchmark federal funds rate — at least, not until inflation has subsided substantially. The government's latest monthly reading on inflation helped fuel investor hopes, sparking a broad-based market rally.

With this as a background, AI server expert Super Microcomputer (NASDAQ: SMCI )The AI ​​solutions provider, also known as Super Micro, rose 11.2 percent this week. C3.ai (NYSE: AI ) acquired 10.5%, and data mining and analytics provider BigBear.ai (NYSE: BBAI ) S&P climbed 8.6 percent, according to data provided by Global Market Intelligence.

Checking all the usual sources — regulatory filings, earnings results, and changes in analysts' ratings and price targets — turned up nothing in the way of company-specific news that could have sent these AI stocks higher this week. . It appears that most of the investors who continued their ascent were concerned about the continued improvement in the state of the US economy.

Image source: Getty Images.

permanent And Anti-inflation

The latest monthly inflation report, courtesy of the U.S. Bureau of Labor Statistics, showed that price increases remained subdued, a welcome development for weary consumers. The Consumer Price Index (CPI) – the most widely watched gauge of inflation – rose 3.4 percent in April from the year-ago period, but rose just 0.3 percent month-on-month.

The year-on-year increase was in line with economists' expectations, while the monthly increase was marginally better than the consensus estimate of 0.4%. The “core” inflation rate, which excludes volatile food and energy prices, was 3.6 percent higher than this time last year, and 0.3 percent higher than March, both results in line with expectations.

The Fed's 2% inflation target is still elusive, but investors are celebrating the incremental improvement.

Basic data suggests the Fed still has work to do. While energy prices rose just 1% compared to the year-ago period, shelter prices, consisting mainly of rents, remained particularly troubling, up 5.5%.

Inflation has remained stubbornly above the Fed's target range for the past few months, making interest rate cuts less likely this year.

Now what

How does the broader study on inflation relate to our three AI stocks? Businesses, like consumers, continue to experience higher costs, making them less likely to take on additional liabilities. Even incremental improvements in the big picture raise hopes among investors that businesses will be more willing to spend on new projects — like adopting AI tools to improve their operations. As a result, these three companies will benefit.

  • Super Microcomputer builds high-end, AI-ready servers that are highly customizable and energy efficient.

  • BigBear.ai's data mining and decision intelligence solutions provide companies with information they can use to make better decisions.

  • C3.ai provides turn-key AI solutions that help businesses adopt AI and get AI-powered applications up and running faster.

Of course, the issue of value is worth considering. C3.ai, Supermicro, and BigBear.ai currently trade at 7 times, 2 times, and 2 times forward sales, respectively. Additionally, C3.ai and BigBear.ai are not profitable, which increases the risk level. This makes the Super Micro my undisputed favorite of the three.

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Danny Vena holds positions in Super Microcomputer. The Motley Fool recommends C3.ai. The Motley Fool has a Disclosure Policy.

Why Super Microcomputer, C3.ai, and Other Artificial Intelligence (AI) Stocks Rallyed This Week was originally published by The Motley Fool.

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