Artificial intelligence (AI) has been a buzzword for the past six months, but the AI buzz is much more real than the nightly trends we’ve seen over the past few years, such as altcoins, memetic stocks, and SPACs.
Advances in semiconductor technology, combined with Transformer technology that allows AI to “supervise” its own training without humans labeling everything, have made human-like AI a reality.
The amazing features of ChatGPT (released in November 2022) seem to have started a new AI arms race. While being a leader in fields such as NVIDIA (NVDA 0.06%) and microsoft (MSFT -0.12%)has seen its stock surge to high multiples, but the following three AI-related names are still trading at undervalued valuations. It means that there is a possibility that
meta platform
meta platform (meta -0.08%) The stock may not look cheap right now, but the headline 25 times the price-to-earnings ratio (PE) is a bit misleading. 2022 was a “perfect storm” for Meta. apple iOS privacy changes that undermine Meta’s ad targeting capabilities and Tik Tok’s competitive threat. Oh, and Meta Platforms also lost his $13.7 billion last year to a metaverse venture, but it doesn’t really make much money and has a very uncertain payoff.
Despite that perfect storm, Meta still made about $29 billion in operating income last year and $42.7 billion in its Family of Apps (FOA) core segment (excluding the Metaverse loss). And those numbers are down from 2021 peaks of $46.7 billion in total operating income and $56.9 billion in FOA operating income. So, despite Meta’s current market cap of $548 billion, the stock is trading at less than 10x the 2021 peak operating profit of its core business.
Keep in mind that Meta had grown over 20% in the years before its recent slowdown. If the stock can return to that kind of growth rate, the stock could explode.
How does Meta plan to regain its mojo? In short, artificial intelligence.
Image Source: Getty Images.
On the advertising front, Meta is using AI to improve its targeting capabilities in the face of iOS headwinds in late 2021 and beyond. The program allows advertisers to rapidly iterate ads with his Advantage+ fine-tuning text and images, test them at scale, and then distribute the best iterations widely.According to recent information financial times Advantage+ is helping some advertisers regain lost return on ad spend due to changes in iOS targeting.
AI is also helping Meta’s Reels product take off. Powered by Meta’s AI Discovery engine, the short-form video format has doubled its engagement over the past year, effectively neutralizing the Tik Tok threat. Also, in a recent Q4 conference call, CEO Mark Zuckerberg discussed how AI can reduce Meta’s bloated cost structure and help software engineers write code faster and be more productive. I pointed out if it helps.
In addition to this year’s results, Meta has just released a large-scale language model developed in-house to researchers and recently brought together AI engineers from different parts of the business into one group set for AI innovation. formed a high-level product group. In early April, Meta released a new AI model that accurately identifies items in images.
As such, investors should not only expect Meta to reap short-term benefits from AI in better engagement, ad monetization and lower costs, but also to develop new AI tools for creators and potentially entirely new businesses in the future. You should also expect Meta’s stock price is very likely to be parabolic, as valuations based on core business earnings remain weak.
super microcomputer
Meta is actually a big customer of server assemblers. super microcomputer (SMCI -0.64%)provides customized server solutions for businesses large and small.
Supermicro has a kind of already Since January 1, 2022, the stock has risen a whopping 146%, creating a parabolic curve.
SMCI data by YCharts.
Server companies typically trade at low multiples, but Super Micro CEO Charles Liang sees big growth for the company going forward. Even in the current soft year for server sales, Super Micro is on track to see more than 30% growth from him, and Liang added that he expects at least 20% growth in 2024.
How did Super Micro do this? First, due to accounting issues in 2018, Super Micro suspended its growth initiatives and after liquidating its accounting department, the company started with a low revenue base. Did. But that accounting problem had more to do with the timing and reporting of earnings than with falsifying sales or profits.
After returning to Nasdaq in early 2020, Super Micro is back in business, developing an innovative ‘rack-scale’ solution to reduce costs for data center operators and opening a new manufacturing plant in Taiwan to reduce costs. and increased its own “green” investments. ” Computing Solutions.
Unlike many server companies that use a standard mass-production model, Super Micro takes a different approach with regards to “building block” architecture. Its modular design and the company’s close ties to Silicon Valley chip makers means Super Micro is often the first to market with servers powered by the latest chips, such as Nvidia’s H100, which can be application-specific. It also has mass customization features for customers who want to design their servers. In addition, Liang has long advocated the spirit of “green” computing, which reduces energy consumption and heat generation through energy efficient design.
The combination of large-scale customization, lower electricity bills for data center operators, and the ability to get new chips to market faster has led to a surge in demand last year. And these benefits should only be magnified in the age of AI. As more and more large companies look to experiment with AI, Super Micro’s ability to reduce rising power bills and provide customized server solutions should be of great benefit.
This is how Super Micro has bucked the technological slump of the past year. However, the AI wars are just beginning, so I think Super Micro can continue to rise further, given its still-cheap valuation.
Image Source: Getty Images.
Ram Research
Finally, semiconductor equipment manufacturers Ram Research (LRCX -1.77%) It’s also a bargain-priced stock set to reap big profits from AI growth.
Among semi-cap equipment manufacturers, rams are distinguished from pucks in several ways. First, it has advanced technology for vertically stacking semiconductor components. This has allowed him to capture a large share of his NAND flash production, which began a decade ago with vertical stacking of modules.
Unfortunately, Mr. Lam has had such a huge impact on the memory industry, which is currently in one of the worst recessions in history, that Mr. Lam’s revenue fell 32% quarter-on-quarter in March, prompting management to We expect another 20% decline in the June quarter. .
But it’s also why Lam trades at a valuation of just 14 times the price-to-earnings ratio. This is a real bargain for companies that should benefit from the long-term growth of AI.
First, AI is memory intensive and AI servers require several times more DRAM and NAND content per server than typical servers on the market today. AI servers account for only about 1% of all server shipments, but over the next five years he’s expected to grow at double-digit annual rates, ultimately leading to a memory resurgence that will put Ram’s memory business on the map. should also be connected.
But cutting-edge logic chips for AI are also moving vertically, especially with a new type of transistor architecture called gate-all-around (GAA). Lam believes it will gain share in the production of GAA transistors, leading to a billion-dollar revenue opportunity.
Lam’s dry resist technology is also increasingly being used in extreme ultraviolet lithography (EUVL) required for advanced chip patterning. Logic and foundry equipment sales accounted for two-thirds of his Ram sales last quarter, while memory accounted for the majority of Ram sales in the years before that.
As such, memory recovery, along with an increasing share of advanced logic chips for AI, will benefit Ram as the market recovers in the future. With a beaten valuation and Ram still making sizable profits even during this downturn, expect the stock to take off as the AI wars heat up.
