The drama of earnings season continued on Thursday as investors digested the most recent financial reports and what they mean by means of the continuing economic recovery.
Investors have been sitting on the sting of their seats waiting to learn if the accelerating adoption of artificial intelligence (AI), which began in earnest last 12 months, will help drive technology stocks to latest heights. Solid results and a blockbuster forecast from a company deeply integrated inside the AI space helped lift other stocks inside the sector.
With that as a backdrop, AI server specialist Super Micro Computer (NASDAQ: SMCI) rose 1.6%, AI solutions provider C3.ai (NYSE: AI) climbed 3.4%, chipmaker Taiwan Semiconductor Manufacturing (NYSE: TSM) jumped 6.8%, warehouse-automation specialist Symbotic (NASDAQ: SYM) soared 9.2%, and AI audio-solutions provider SoundHound AI (NASDAQ: SOUN) surged 14.6% by the purpose the market closed on Thursday.
A check of all of the standard suspects — regulatory filings, financial reports, and changes to analysts’ price targets — turned up nothing in one of the simplest ways of company-specific news driving any of those AI stocks higher. Which means that the bulk investors were captivated by how AI affected the quarterly financial results of Arm Holdings (NASDAQ: ARM).
A surprisingly strong performance
The semiconductor specialist reported the outcomes of its fiscal 2024 third quarter (ended Dec 31.), and investors were watching closely to see if the company would cash in on the mad rush to adopt AI — and they weren’t upset. And while Arm’s results were higher than expected, it was the company’s blockbuster forecast that caught market watchers by surprise.
Arm generated revenue of $824 million, an increase of 14% 12 months over 12 months. While which can not seem spectacular at first glance, it blew past the company’s previous guidance in a variety of $720 million and $800 million. Its profits also got a lift, with adjusted earnings per share (EPS) of $0.29 rising 32% 12 months over 12 months.
For perspective, analysts’ consensus estimates were calling for revenue of $761 million and EPS of $0.25, so Arm sailed past each benchmarks with ease.
Nonetheless, it was Arm’s forecast for the current quarter that caught investors off guard. Management said it expects fourth-quarter revenue in a variety of $850 million to $900 million, well ahead of Wall Street’s expectations of $778 million. The company can be forecasting a commensurate boost in profitability, guiding for adjusted EPS of $0.30 on the midpoint of its guidance, sailing past analysts’ estimates of $0.21.
Further fueling the fervor were comments made by CEO Rene Haas. In an interview with Bloomberg Television, the chief executive said, “AI won’t be in any way, shape or form a hype cycle,” he said. “We consider that AI might be probably the most profound opportunity in our lifetimes, and we’re only firstly.”
Throughout the wake of those strong results and the CEO’s daring pronouncement, Arm Holdings shares soared nearly 48%.
AI will touch every industry
It is simple to see why investors got caught up inside the frenzy, as Arm’s robust results and dazzling forecast made headlines. Furthermore, it has been only a 12 months since generative AI burst on the scene, and lots of corporations are still deciding how best to implement the technology. Which means that the AI boom could proceed for quite some time.
So, what does all this must do with our quintet of stocks, and the way in which will they cash in on these advances in AI?
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Super Micro Computer makes high-end servers that are energy efficient and highly customizable, helping meet the growing demand for AI.
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C3.ai offers turnkey AI solutions that help enterprises get AI applications up and running quickly.
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Taiwan Semiconductor Manufacturing operates a foundry that produces a lot of the chips utilized in AI applications.
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Symbotic developed an AI-fueled, end-to-end warehouse-automation system that optimizes storage and traffic. As retailers look to learn from AI, Symbotic will likely be high on their list.
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SoundHound AI provides AI-controlled voice and audio solutions to the automotive and restaurant industries. The company’s solutions will probably be adapted to restaurant drive-throughs, self-serve kiosks, and phone orders, amongst others, which may also help these businesses join the AI revolution.
It will be important to take into accout that not all AI-centric corporations are created equal. It could be mandatory as time goes on that these corporations live as much because the promise of AI by delivering the revenue and profits investors expect. Of the five, only Taiwan Semiconductor and Super Micro Computer are currently profitable.
Then, there’s the matter of valuation. SoundHound AI and C3.ai are each selling for 11 times sales, while Taiwan Semiconductor, Super Micro Computer, and Symbotic are selling for 10 times, 4 times, and a pair of times sales, respectively.
For my money, Taiwan Semiconductor is the least dangerous of the stocks presented here, and Symbotic is probably the greatest value. That said, each of those stocks represents an intriguing opportunity, but investors should size their positions based on their risk tolerance and the degree of volatility they’re prepared to withstand.
Do you might have to speculate $1,000 in Taiwan Semiconductor Manufacturing right away?
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Danny Vena has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Idiot recommends C3.ai and Super Micro Computer. The Motley Idiot has a disclosure policy.
Why Super Micro Computer, C3.ai, Taiwan Semiconductor, and Other Artificial Intelligence (AI) Stocks Rallied on Thursday was originally published by The Motley Idiot