There is little doubt that one of the main forces driving the market up over the past year has been advances in artificial intelligence (AI). Despite investors' enthusiastic expectations about the technology's prospects, there are concerns that the Federal Reserve continues to fight inflation. Interest rates are at 20-year highs, and investors are keenly interested in the timing and likelihood of central banks cutting rates. The central bank has indicated there is no need to rush to lower the benchmark federal funds rate, at least until inflation has subsided sufficiently. The government's latest monthly data on inflation raised investor expectations and sparked a broad market rally.
Against this background, AI server specialists super microcomputer (NASDAQ:SMCI)The AI solutions provider, also known as Supermicro, has soared 11.2% this week C3.ai (NYSE:AI) Data mining and analytics providers increased by 10.5% BigBear.ai (NYSE:BBAI) It rose 8.6%, according to data provided by S&P Global Market Intelligence.
After checking all the usual sources of information, including regulatory filings, earnings reports, and changes to analyst ratings and price targets, the company-specific news that could have driven these AI stocks higher this week: Nothing was found. This seems to suggest that most investors who were driving the rally were blinded by the fact that conditions in the US economy were gradually improving.
sustained and stubborn inflation
The latest monthly inflation report from the U.S. Bureau of Labor Statistics shows that price increases continue to slow, a welcome development for weary consumers. The Consumer Price Index (CPI), the most widely watched inflation measure, rose 3.4% in April compared to the same month last year, but rose only 0.3% month-on-month.
The year-on-year increase was in line with economist expectations, and the month-on-month increase was slightly higher than the consensus estimate of 0.4%. Core inflation, which does not include volatile food and energy prices, rose 3.6% compared to the same period last year and 0.3% from March, both in line with expectations.
The Fed's 2% inflation target is still out of reach, but investors are welcoming gradual improvement.
Fundamental data shows the Fed still has work to do. While energy prices increased by just 1% year-on-year, shelter prices, which mainly consist of rental fees, continued to rise by 5.5% and were particularly problematic.
Inflation has remained above the Fed's target range for the past few months, making it less likely that the central bank will start cutting rates before the end of the year.
So
What does the broader view on inflation have to do with these three AI stocks? Like consumers, businesses continue to feel the pinch from rising prices and are unlikely to take on additional obligations. Become. Even incremental improvements in the big picture raise expectations among investors that companies will be more willing to invest in new projects, such as implementing AI tools to improve operations. This in turn will benefit these three companies.
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Super Micro Computer makes highly customizable, energy efficient, and AI-enabled high-end servers.
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BigBear.ai's data mining and decision intelligence solutions provide information that businesses can use to make better decisions.
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C3.ai provides turnkey AI solutions that help enterprises deploy AI and get AI-powered applications up and running quickly.
Of course, there are valuation issues to consider. C3.ai, Supermicro, and BigBear.ai are currently trading at 7x, 2x, and 2x forward sales, respectively. Furthermore, C3.ai and BigBear.ai are not profitable, increasing the level of risk. Therefore, my favorite among these three would be Supermicro.
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Danny Vena holds a position in Super Microcomputer. The Motley Fool recommends his C3.ai. The Motley Fool has a disclosure policy.
Why Supermicrocomputers, C3.ai, and Other Artificial Intelligence (AI) Stocks Are Soaring This Week is published by The Motley Fool.
