The past year has been something of a coming-out party for artificial intelligence (AI), with Wall Street and Main Street alike being introduced to the capabilities of AI’s next-generation algorithms. It didn’t take long for investors to realize that many of the best-performing stocks in the stock market have one thing in common: they have AI in their DNA.
american bank Analyst Michael Hartnett coined the term “Magnificent Seven” from the 1960 film of the same name to describe this group of high-growth stocks. Listed alphabetically.
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alphabet
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Amazon
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apple
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meta platform
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microsoft
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Nvidia
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tesla
It’s easy to see how these market leaders were lumped together, but a concentrated focus on these stocks can be short-sighted, especially when excluding all other stocks. there is. Don’t get me wrong. I own all shares in The Magnificent Seven and have no plans to sell. That said, I believe there are attractive opportunities outside of these seven elements.
Let’s take a look at three AI stocks with the potential for explosive gains. do not have A member of the Magnificent Seven.
1. Arm Holdings
arm holdings (NASDAQ:ARM) is best known for creating the blueprints for many of the world’s most widely used central processing units (CPUs). The company’s designs are ubiquitous, spanning all areas of technology, particularly cloud computing, hyperscale computing, and data centers.
Much of the AI processing happens in the cloud and data centers, so this positioning helped the company get on track when generative AI emerged last year. As data center operators rush to upgrade to the more robust processors needed to handle the rigors of AI, Arm’s latest (in other words, most lucrative) design is all the rage. Take Nvidia’s GH200 Grace Hopper superchip as an example. It combines accelerated CPU and GPU technology to meet this need, featuring 144 Arm’s top version 9 (V9) CPU cores.
For the third quarter of fiscal 2024, ending December 31, Arm record Revenues were $824 million, an increase of 14% year over year. This performance was driven by licensing revenue, which increased by 18%. record Royalty income increased 11%. Adjusted earnings per share (EPS) also increased 32% to $0.29. However, the company’s remaining performance obligations (RPO), which provide a glimpse into sales trends, point to Arm’s future. RPO increased 38% year-over-year to $2.43 billion, suggesting that growth is just beginning to accelerate.
Arm stock may look expensive using most common valuation metrics that don’t take growth trajectory into account. However, the company’s expected price/earnings ratio (PEG) is less than 1, which is the standard for an undervalued stock.
2. Super microcomputer
Arm handles the CPU part of the AI equation; super microcomputer (NASDAQ:SMCI)Also known as Supermicro, we offer specialized servers designed to handle the rigors of AI. Supermicro offers a variety of high-end servers powered by cutting-edge AI processors from companies like Nvidia. Advanced Micro Devicesand intelamong others.
Additionally, the company’s focus on energy efficiency is legendary. AI systems require a lot of processing power, and Supermicro systems have enjoyed a commensurate surge in demand, as evidenced by recent financial results.
For the company’s second quarter of fiscal 2024 (ending December 31), Supermicro record Revenue increased 103% year over year to $3.66 billion, and diluted EPS increased 85% to $5.10.
If that’s not enough, management expects growth to accelerate, with third-quarter sales at the midpoint of $3.9 billion, a 205% year-over-year growth.
Like Arm, Supermicro’s valuation appears overvalued when using the two most commonly used valuation metrics: price-to-earnings ratio or sales multiple. However, the forward PEG ratio, which takes into account accelerated growth, is less than 1, suggesting it is undervalued.
3. Palantir Technologies
Palantir Technologies (NYSE:PLTR) AI is not unknown. More than 20 years ago, the company’s original goal was to help the U.S. government stop terrorists. Since then, the company has expanded its mission to provide AI-powered data mining and business analysis services to enterprise-level companies.
Its expertise in AI makes Palantir the first stop for many companies looking to implement generative AI, and the company pivoted to meet that need. The result of that effort was the Artificial Intelligence Platform (AIP), a system designed to help companies identify their most mission-critical needs and automate solutions. Working with Palantir engineers, users build AI-powered tools customized to their needs. Additionally, Palantir’s intensive bootcamps help companies develop solutions in just 1-5 days.
The company’s success is evident in its latest results. Fourth quarter revenue was $608 million, up 20% year over year, and EPS was $0.04, quadrupling. However, U.S. commercial revenue, including AIP, increased 70% year over year, and the company’s total contract value soared 107%.As a result, Palantir forecasts that U.S. commercial revenue will at least 40% in 2024, but management guidance tends to be conservative.
Like Arm and Supermicro, Palantir’s forward PEG ratio is less than 1, suggesting the stock is undervalued.
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Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Danny Vena has held positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Super Micro Computer, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 calls on Intel, Long January 2025 $45 calls on Intel, Long January 2026 $395 calls on Microsoft, Short January 2026 $405 calls on Microsoft. call, and a May 2024 $47 short call. Intel. The Motley Fool has a disclosure policy.
Beyond the ‘Magnificent Seven’: 3 Great Artificial Intelligence (AI) Growth Stocks with Explosive Rising Potential was originally published by The Motley Fool.
