Much of the market’s recovery this year has been driven by enthusiasm over artificial intelligence (AI) and the growing number of potential applications for the technology. Conservative estimates put the market value of generative AI at around $1 trillion, while others are much higher. Companies at the forefront of technology – those providing the semiconductors and servers needed to integrate AI – have seen demand for their products soar, helping to fuel the recovery.
With that as a backdrop, the AI-centric server maker Supermicrocomputer (NASDAQ:SMCI) rose 12.2% this week, computer and server specialist Dell Technologies (NYSE: DELL) jumped 11.1%, memory and storage chip maker Micron Technology (NASDAQ:MU) rose 2.6%, and Nvidia (NASDAQ: NVDA) rose 2% as of 12:52 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.
A number of intriguing developments have helped lift these AI stocks.
All eyes on Nvidia
The biggest mover in the AI space last week was Nvidia. It’s well known that when chipmaker stocks move, many other stocks in the AI space tend to follow suit – whether there’s company-specific news or not. And there’s a lot going on with Nvidia stock. The company completed its high-profile stock split last week, which generated great enthusiasm among investors.
Nvidia also received an upbeat update from Wall Street, adding fuel to the fire. The notable comment came courtesy of Rosenblatt Securities analyst Hans Mosesmann, who reiterated his Buy rating on the stock and raised his price target to a Street high of $200. For those keeping track at home, that represents a potential 48% increase compared to Tuesday’s closing price and would give Nvidia a market value of nearly $5 trillion.
Demand for Nvidia’s graphics processing units (GPUs) has been off the charts and market watchers are turning over every stone to see which AI-related company will be next to see its profits soar.
Other catalysts
There have been other developments in the space that have helped fuel the AI rally.
Morgan Stanley Analyst Erik Woodring made positive comments about Dell, calling the stock a “Top Pick” after meeting with the company’s management. The analyst went on to say that Dell would continue to outperform into 2024 due to its strong competitive position and the secular tailwinds represented by growing market demand for AI-centric servers. Woodring maintained his outperform rating and $155 price target on the stock.
In turn, Micron received a vote of confidence from analysts at Wells Fargo, who maintained their Buy rating on the stock while raising their price target to $190. This represents a 24% upside from the stock’s Tuesday closing price. Analysts suggest the company is capable of generating earnings per share of $15, significantly higher than analyst consensus estimates, which currently point to $8.87 for 2025.
On another front, Elon Musk also gave a boost to Dell and Supermicro, revealing that the two companies will supply servers to AI start-up xAI, which is in the process of building a supercomputer to support its AI efforts. In a post on X (formerly Twitter), the enigmatic CEO wrote: “Dell is assembling half the racks that go into the supercomputer xAI is building.” In response to a question from another poster: “Whose [sic] building the other half?” Musk replied: “SMC [Super Micro Computer].”
Is it too late to buy?
There is an argument that each of these stocks represents an attractive opportunity. Micron, Super Micro Computer and Dell are currently selling at 4x, 2x and 1x forward sales, a reasonable price to pay for three companies poised to profit from the accelerated adoption of AI.
Nvidia is the exception. Thanks to the company’s triple-digit sales and profit gains and resulting share price surge this year, the most commonly used valuation metrics are useless. Nvidia’s price/earnings/growth (PEG) ratio – which takes this growth into account – is less than 1, the benchmark for an undervalued stock.
To be clear, the AI revolution is just beginning, and as such, stocks in the space will be even more volatile than usual. Investors don’t want to miss one of the biggest opportunities in a generation, but many will buy and sell based on whims and the latest rumors.
Those looking to profit from these strong secular tailwinds would be better served by buying a basket of the best AI stocks they can find and hold for the long term.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions at Nvidia and Super Micro Computer. The Motley Fool has positions and recommends Nvidia. The motley fool has a disclosure policy.
Why Shares of Nvidia, Super Micro Computer, Dell and Other Artificial Intelligence (AI) Stocks Soared This Week was originally published by The Motley Fool
