Much of the market's rally this year has been driven by the promise of 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, but some estimates are much higher. Cutting-edge technology companies that provide the semiconductors and servers needed to integrate AI have seen a surge in demand for their products, fueling the rally.
With this as a backdrop, AI-centric server manufacturers Super Microcomputer (NASDAQ:SMCI) Up 12.2% this week, computer and server specialist Dell Technologies (NYSE: DELL) Memory and storage chipmakers rose 11.1%. Micron Technology (Nasdaq: MU) It increased by 2.6% NVIDIA (NASDAQ: NVDA) It was up 2% as of 12:52 p.m. ET on Thursday, according to data from S&P Global Market Intelligence.
A number of interesting developments have fuelled the rise in these AI stocks.
Nvidia is in the spotlight
The biggest driver in the AI space over the past week has been Nvidia. It's well-known that when the chipmaker's stock moves, many other stocks in the AI space tend to follow suit, with or without company-specific news. And there's a lot of movement in Nvidia stock. The company completed a highly-anticipated stock split last week, generating a lot of excitement among investors.
NVIDIA also received some bullish news from Wall Street, adding fuel to the fire. Notable comments came from Rosenblatt Securities analyst Hans Mosesmann, who reiterated his buy recommendation on NVIDIA shares and raised his price target to a Wall Street-high $200. For those following the stock at home, this represents a 48% upside potential compared to Tuesday's closing price, bringing NVIDIA's market cap to nearly $5 trillion.
Demand for Nvidia's graphics processing units (GPUs) is surging, leaving market watchers desperate to figure out which AI company will see the next big profit surge.
Other catalysts
There were other developments in the field that also helped drive the rise of AI.
Morgan Stanley Analyst Eric Woodring made positive comments about Dell, calling the stock a “top pick” after meeting with the company's management. The analyst further noted that Dell should continue to outperform in 2024, backed by strong competitive positions and secular tailwinds, particularly rising market demand for AI-centric servers. Woodring maintained his outperform rating and $155 price target on the stock.
Meanwhile, Micron is gaining the trust of analysts. Wells Fargomaintained a buy recommendation on the stock and raised its price target to $190, a 24% increase from Tuesday's closing price. Analysts suggest the company has the ability to generate $15 in earnings per share, well above the analyst consensus estimate of $8.87 per share in 2025.
Meanwhile, Elon Musk gave a boost to Dell and Supermicro, revealing that the two companies will provide servers to xAI, an AI startup that is building a supercomputer to aid in its AI efforts. In a post on X (formerly Twitter), the enigmatic CEO wrote, “Dell is building half the racks that will go into the supercomputer that xAI is building.” In response to another poster asking, “Whose racks?”, Musk replied, “Dell is building half the racks that will go into the supercomputer that xAI is building.” [sic] When asked, “Will we build the other half?” Musk replied, “SMC [Super Micro Computer]”
Is it too late to buy?
There's an argument to be made that these stocks all represent attractive opportunities: Shares of Micron, Super Micro Computer, and Dell are currently selling at 4x, 2x, and 1x their expected selling prices, which are reasonable prices for three companies that are poised to benefit from accelerating adoption of AI.
Nvidia is an exception. The company's triple-digit sales and profit growth this year and the corresponding surge in its stock price have made the most widely used valuation metric irrelevant. Nvidia's price-to-earnings-growth (PEG) ratio, which takes its growth into account, is below 1, the benchmark for cheap stocks.
To be clear, the AI revolution is just beginning, which means stocks in this space will be even more volatile than usual: Investors will not want to miss out on one of the biggest opportunities of a generation, but many will likely buy and sell based on whims or the latest rumors.
Those looking to benefit from these powerful secular tailwinds would be better off buying a batch of the best AI stocks they can find and holding them for the long term.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool property. Danny Vena invests in Nvidia and Super Micro Computer. The Motley Fool invests in and recommends Nvidia. The Motley Fool has a disclosure policy.
Why Nvidia, Super Micro Computer, Dell and other artificial intelligence (AI) stocks are soaring this week was first published by The Motley Fool.
