ChatGPT Sparks the AI Revolution
On Wall Street, innovation leads to earnings growth, and earnings growth which eventually leads to higher equity prices. In late 2022, OpenAI, which counts tech behemoth Microsoft (MSFT) as its largest investor, sparked the Artificial Intelligence (AI) revolution with the release of its “chatbot” ChatGPT. ChatGPT, which leverages a large language model (LLM), allows users to get answers to almost any question in the world instantly. Though artificial intelligence has been around for decades, ChatGPT was the first proof of concept, becoming the fastest consumer app to reach the milestone of 100 million users and sparking other tech companies like Alphabet (GOOGL) to rush in and enter the AI fray.
AI Juggernauts Finally Retreat
Undoubtedly, investors have enjoyed a bull market over the past year, as evidenced by rising equities and a breakout to new highs, strong earnings, and broad-based participation. Like most bull markets, the stocks with the most robust growth are the ones that lead. In this market, artificial intelligence-related stocks are clearly the industry leading the way. In a recent podcast, Tesla (TSLA) CEO Elon Musk said, “AI is the fastest advancing technology I’ve seen of any kind, and I’ve seen a lot of technology.” Though I am far from a technologist, I have been around Wall Street for multiple decades, and I, too, have not witnessed this type of earnings growth.
After a tremendous move, AI-related names such as Nvidia (NVDA), Super Micro Computer (SMCI), Arm Holdings (ARM) are finally retreating as inflation worries spook U.S. investors after a hotter-than-expected CPI reading.
Risk/Reward is Favorable for Intermediate/Long Term Investors
Whether you caught or missed the move in AI-related stocks, now is the time to revisit them. Below are three important reasons why, including:
1st Tag of 10-week Moving Average in Ages
As I have said before, institutional investors tend to defend the intermediate-term 10-week moving average in bull markets, and the area historically provides a fantastic reward-to-risk ratio for investors. For example, shares of NVDA, which trended from $500 in January to nearly $1,000 per share, are retreating uniformly to their 10-week moving average.
Earnings Growth Shows Little Sign of Slowing
As the race to AI dominance intensifies, Wall Street sees earnings growth in several AI-related names gaining momentum. For instance, Zacks Consensus Estimates suggest that Super Micro Computer will grow quarterly earnings by triple digits over the next two quarters, which is not too shabby for a $50 billion company.
Correcting Through Time, Not Price
A lack of selling after a monstrous gain is a simple yet effective signal that bulls are no rushing to part with shares. ARM shares exploded 62% after reporting monstrous earnings in February. Since then, shares have digested those gains and have held the earnings gains entirely – a sign that bulls are in control.
Bottom Line
Amateur investors often hope for a pullback but never pull the trigger when it occurs. That said, a pullback in AI stocks may offer a juicy reward-to-risk zone to take advantage of.
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ChatGPT Sparks the AI Revolution
On Wall Street, innovation leads to earnings growth, and earnings growth which eventually leads to higher equity prices. In late 2022, OpenAI, which counts tech behemoth Microsoft (MSFT) as its largest investor, sparked the Artificial Intelligence (AI) revolution with the release of its “chatbot” ChatGPT. ChatGPT, which leverages a large language model (LLM), allows users to get answers to almost any question in the world instantly. Though artificial intelligence has been around for decades, ChatGPT was the first proof of concept, becoming the fastest consumer app to reach the milestone of 100 million users and sparking other tech companies like Alphabet (GOOGL) to rush in and enter the AI fray.
AI Juggernauts Finally Retreat
Undoubtedly, investors have enjoyed a bull market over the past year, as evidenced by rising equities and a breakout to new highs, strong earnings, and broad-based participation. Like most bull markets, the stocks with the most robust growth are the ones that lead. In this market, artificial intelligence-related stocks are clearly the industry leading the way. In a recent podcast, Tesla (TSLA) CEO Elon Musk said, “AI is the fastest advancing technology I’ve seen of any kind, and I’ve seen a lot of technology.” Though I am far from a technologist, I have been around Wall Street for multiple decades, and I, too, have not witnessed this type of earnings growth.
After a tremendous move, AI-related names such as Nvidia (NVDA), Super Micro Computer (SMCI), Arm Holdings (ARM) are finally retreating as inflation worries spook U.S. investors after a hotter-than-expected CPI reading.
Risk/Reward is Favorable for Intermediate/Long Term Investors
Whether you caught or missed the move in AI-related stocks, now is the time to revisit them. Below are three important reasons why, including:
1st Tag of 10-week Moving Average in Ages
As I have said before, institutional investors tend to defend the intermediate-term 10-week moving average in bull markets, and the area historically provides a fantastic reward-to-risk ratio for investors. For example, shares of NVDA, which trended from $500 in January to nearly $1,000 per share, are retreating uniformly to their 10-week moving average.
Earnings Growth Shows Little Sign of Slowing
As the race to AI dominance intensifies, Wall Street sees earnings growth in several AI-related names gaining momentum. For instance, Zacks Consensus Estimates suggest that Super Micro Computer will grow quarterly earnings by triple digits over the next two quarters, which is not too shabby for a $50 billion company.
Correcting Through Time, Not Price
A lack of selling after a monstrous gain is a simple yet effective signal that bulls are no rushing to part with shares. ARM shares exploded 62% after reporting monstrous earnings in February. Since then, shares have digested those gains and have held the earnings gains entirely – a sign that bulls are in control.
Bottom Line
Amateur investors often hope for a pullback but never pull the trigger when it occurs. That said, a pullback in AI stocks may offer a juicy reward-to-risk zone to take advantage of.
Free Report – The Bitcoin Profit Phenomenon
Zacks Investment Research has released a Special Report to help you pursue massive profits from the world’s first and largest decentralized form of money.
No guarantees for the future, but in the past three presidential election years, Bitcoin’s returns were as follows: 2012 +272.4%, 2016 +161.1%, and 2020 +302.8%.
Zacks predicts another significant surge. Click below for Bitcoin: A Tumultuous Yet Resilient History.
Download Now – Today It’s FREE >>
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