what happened
May 2023 was a very quiet month for the stock market as a whole. S&P500 The market index remained flat with a monthly increase of 0.3%, Dow Jones Industrial Average The index fell 3.5%.
However, a number of companies with ties to artificial intelligence (AI) have bucked that quiet trend. For example, data from S&P Global Market Intelligence shows that these three AI-adjacent stocks posted significant gains last month.
|
stock |
AI business |
Stock price trend in May 2023 |
|---|---|---|
|
cloudflare (Net -1.85%) |
Cloud-based AI requires network security, and Cloudflare is the leader. |
47% |
|
Advanced Micro Devices (AMD 5.34%) |
Some chips are for AI training and others are for end-user AI devices. |
32.3% |
|
MongoDB (MDB -0.24%) |
Next-generation databases support AI systems and rapid app development. |
22.4% |
Price data from S&P Global Market Intelligence.
Before we get into what drove these three AI stocks up in May, it’s worth noting that Cloudflare started at an unusually low level. The company had strong first-quarter sales and reported excellent sales in the last week of April, but its muted full-year sales outlook sent its stock down more than 21% the next day.
Therefore, moving the start date of this measurement period to Thursday, April 27, instead of the last market day, Friday, April 28, makes a big difference for this stock. Cloudflare still achieved a respectable 16.1% growth over a slightly extended period, but was not the clear leader among these AI triplets and was the worst performer.
so what
These stocks were market favorites before 2022’s inflationary market pain. Eighteen months ago, these price-to-sales ratios traded in the range of 12 (AMD) to 108 (Cloudflare) with most of the gains making up the majority of the gains. The lines were printed in red ink. This has made them sensitive to the risk-averse market trends of recent quarters. The rebound started near the end of 2022, but AMD still entered with a price 39% below its November 2021 peak. MongoDB made a massive 57% devaluation while Cloudflare plunged 77% over the same period.
On the bright side, stocks had a volatile trend that pushed them down, so any positive news was likely to trigger a surge reaction. In this case, none of the good news was based on good performance. AMD’s earnings were largely flat in early May, which didn’t do much to support the stock. We’ve already shown you how Cloudflare’s results have been factored into the recent stock charts, MongoDB has posted some great results, but it wasn’t until June 1st.
In other words, the price rise was a combination of two megatrends. First, investors are seeing light at the end of the inflation tunnel and are rethinking fleeing high-growth stocks with thin or negative earnings. Also, while everyone is talking about artificial intelligence this year, it was Nitro Boosters that pushed this tech trio even further last month.
Cloudflare, for example, boosted its stock price last month with several strategic press releases. Just a reminder to everyone that the company sells storage services and security tools to many of the leading generative AI systems. MongoDB achieved a similar effect by engaging senior executives in AI discussions with well-known media outlets such as SecurityMetrics and InformationWeek. AMD took that strategy one step further, posting an 11% gain in a single day after an exciting conference presentation centered around the company’s AI business.
So
Artificial intelligence is not an entirely new trend, and these companies have spent years, even decades, developing their AI strategies. Still, the sudden surge of AI debate sparked by OpenAI’s launch of his ChatGPT tool shook the entire industry. AI systems can suddenly do things that seemed impossible until last year, and everyone wants to make the most of this unique inflection point in the history of computing.
Looking ahead, MongoDB, Cloudflare, and AMD appear well-positioned to capitalize on the growing importance of AI in a variety of areas. These companies and many of their peers have demonstrated that strategic investments in AI systems and services can transform both business and stock charts. Investors may want to consider the role of AI in their portfolios, especially given the impact of recent AI trends on such stocks.
That’s not to say that all AI companies are guaranteed to win in the long run, though. Some of them appear to pose more market risk than potential rewards. Given the volatility and rapid pace of change in the tech sector, the spike in opportunity for these stocks often comes with higher risk as well. Thorough due diligence is recommended before making investment decisions in this fast-growing yet unpredictable sector of the information technology sector.
Anders Bylund has a job at MongoDB. The Motley Fool holds positions with and recommends Advanced Micro Devices, Cloudflare, and MongoDB. The Motley Fool has a disclosure policy.
