Much of the market's rally this year has been driven by excitement over artificial intelligence (AI) and the growing number of potential applications for the technology. Conservative estimates put the market value of generative AI in the neighborhood of $1 trillion, while others put it much higher. Companies at the cutting edge of technology — those that provide the semiconductors and servers needed to integrate AI — have seen demand for their products surge, helping to fuel the rally.
With this as a background, AI-centric server builder Super Microcomputer (NASDAQ: SMCI ) The computer and server specialist rose 12.2 percent this week Dell Technologies (NYSE: DELL) The memory and storage chipmaker rose 11.1 percent. Micron Technology (NASDAQ: MU ) 2.6% climbed, and Nvidia (NASDAQ: NVDA ) It rose 2% as of 12:52 pm ET on Thursday, according to data provided by S&P Global Market Intelligence.
A number of interesting developments helped push these AI stocks higher.
All eyes on Nvidia
The biggest driver in the AI space over the past week has been Nvidia. It's well known that when a chipmaker's shares move, many other stocks in the AI space follow suit — whether or not there's news about the company. And there's a lot going on with Nvidia stock. The company completed its high-profile stock split last week, sparking investor excitement.
Nvidia also received a bullish update from Wall Street, adding additional fuel to the fire. The notable comment came courtesy of Rosenblatt Securities analyst Hans Moseman, who reiterated his buy rating on the stock and raised his price target to $200. For those watching at home, this represents a potential upside of 48% from Tuesday's closing price and would give Nvidia a market cap of nearly $5 trillion.
Demand for Nvidia's graphics processing units (GPUs) has been off the charts and market watchers are turning over every rock to see where the AI-related company will be next to see its profits rise.
Other catalysts
There were other developments in the space that helped fuel the AI rally.
Morgan Stanley Analyst Eric Woodring issued a positive note on the deal, calling the stock a “top pick” after meeting with the company's management. The analyst went on to say that Dell will continue to outperform in 2024 due to its strong competitive position and secular tailwinds represented by growing market demand for AI-centric servers. Woodring maintained its outperform rating and has a $155 price target on the stock.
For its part, Micron received a vote of confidence from analysts Wells Fargo, who maintained his buy rating on the stock, while raising his price target to $190. That represents a 24 percent upside to the stock's closing price on Tuesday. Analysts believe the company has the potential to generate earnings per share of $15, significantly higher than consensus estimates, which currently call for $8.87 by 2025.
On another front, Elon Musk also promoted Dell and SuperMicro, revealing that the two companies will provide servers for AI startup xAI, which is in the process of building a supercomputer to support its AI efforts. Is. In a post on X (formerly Twitter), the secretive CEO wrote, “Dell is assembling half the racks that are going into the supercomputer that xAI is building.” In response to another poster's question, “Whose [sic] Building the other half?”, Musk replied, “SMC [Super Micro Computer]”
Is it too late to buy?
There's an argument that each of these stocks represents a tremendous opportunity. Micron, Super Microcomputer, and Dell currently sell for 4x, 2x, and 1x forward sales, respectively, which is a reasonable price to pay for three companies poised to profit from the rapid adoption of AI. There is a price.
Nvidia is out. Thanks to the company's triple-digit sales and profit growth and the resulting rise in stock prices this year, most commonly used valuation metrics are worthless. Nvidia's price/earnings-to-growth (PEG) ratio — which takes this growth into account — comes in at less than 1, a benchmark for an undervalued stock.
Clearly, the AI revolution is just beginning, and thus stocks in the space will be more volatile than usual. Investors don't want to miss out on one of the biggest opportunities of a generation, but many will buy and sell based on whims and the latest rumors.
Those looking to take advantage of these strong secular tailwinds would be better served to buy a basket of the best AI stocks they can find and hold for the long term.
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Wells Fargo is the advertising partner of The Motley Fool Company, The Ascent. Danny Vena holds positions at Nvidia and Super Microcomputer. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a Disclosure Policy.
Why Nvidia, Super Microcomputer, Dell, and other artificial intelligence (AI) stocks rallied this week was originally published by The Motley Fool.