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The Artificial Intelligence theme has been on the periphery of investors’ minds for a handful of years. However, it took until 2023, after the launch of OpenAI and Microsoft’s ((MSFT - Free Report) ) Chatbot ChatGPT, to set the industry’s stocks on fire. Suddenly, investors took notice, companies raised guidance, and Wall Street analysts ratcheted up their price targets. Now other entrants such as Alphabet ((GOOGL - Free Report) ) and Baidu ((BIDU - Free Report) ) are racing to catch up.
Do you feel as if you’ve missed the move?
As traders, we must understand that we are all human and prone to mistakes and missed trades. That said, just because you missed the first part of a move doesn’t mean it’s over. Below are 5 reasons why AI stocks will be higher into year-end:
Power and distance are correlated: According to research by Carson Group’s Ryan Detrick, when the S&P 500 Index is up by more than 10% at the end of June (like it is now), the next six months are up a median of 12.4% and are higher 89% of the time. Though it may seem counterintuitive, strength begets strength. Because roughly three in four stocks follow the general market, AI stocks should benefit. Keep in mind that the tech-heavy Nasdaq is also off to one of its best starts in history as well.
Earnings Estimates are Soaring: Last quarter, Zacks Rank #1 (Strong Buy) stock Nvidia ((NVDA - Free Report) ) raised quarterly guidance by a whopping $4 billion from $7 to $11 billion. A guidance raise of that magnitude is unprecedented and likely means that the trend is closer to the beginning, not the end. Analysts agree – for the next three quarters, Zacks Consensus Estimates suggest that the AI leader will achieve blistering triple-digit EPS growth year-over-year.
Image Source: Zacks Investment Research
Bad News is No News: “It’s not the news that’s important, but rather the markets’ reaction to the news.” If you believe that statement as I do, Wednesday’s action was telling. Tuesday night, news broke that the Biden administration is considering new curbs on AI chip exports to China. Despite the negative headlines, Nvidia and Advanced Micro Devices ((AMD - Free Report) ) took the news in stride, barely flinching.
Image Source: TradingView
Holding Gains: Often, investors can glean more from pullbacks than advances. AI-related leaders such as Rambus ((RMBS - Free Report) ) and Super Micro Computer ((SMCI - Free Report) ) are retreating in an orderly fashion – an indication that investors are in no rush to sell. Furthermore, volume is decreasing on the pullback, signaling that selling is dissipating.
Image Source: TradingView
Unprecedented User Growth: Chat GPT is the fastest-growing consumer app in history. In just five days’ time, ChatGPT grew to 1 million users. Since then, user growth has exploded to over 100 million, according to the latest data. Though ChatGPT’s blistering growth is impressive, it may just be the start. Using Meta Platform’s (META) Instagram (the second fastest to 1 million users) as a precedent, early user growth of this magnitude lasts for years, not days.
Takeaway
Don’t fret if you’ve missed out on the AI move of 2023 so far. If one dissects the fundamental and technical picture in the AI industry currently, it suggests that a long runway lies ahead. Remember, a mega-trend like AI typically lasts years, not days, and trends tend to persist much longer than most anticipate.
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AI Stocks: Too Late to Invest?
The Artificial Intelligence theme has been on the periphery of investors’ minds for a handful of years. However, it took until 2023, after the launch of OpenAI and Microsoft’s ((MSFT - Free Report) ) Chatbot ChatGPT, to set the industry’s stocks on fire. Suddenly, investors took notice, companies raised guidance, and Wall Street analysts ratcheted up their price targets. Now other entrants such as Alphabet ((GOOGL - Free Report) ) and Baidu ((BIDU - Free Report) ) are racing to catch up.
Do you feel as if you’ve missed the move?
As traders, we must understand that we are all human and prone to mistakes and missed trades. That said, just because you missed the first part of a move doesn’t mean it’s over. Below are 5 reasons why AI stocks will be higher into year-end:
Power and distance are correlated: According to research by Carson Group’s Ryan Detrick, when the S&P 500 Index is up by more than 10% at the end of June (like it is now), the next six months are up a median of 12.4% and are higher 89% of the time. Though it may seem counterintuitive, strength begets strength. Because roughly three in four stocks follow the general market, AI stocks should benefit. Keep in mind that the tech-heavy Nasdaq is also off to one of its best starts in history as well.
Earnings Estimates are Soaring: Last quarter, Zacks Rank #1 (Strong Buy) stock Nvidia ((NVDA - Free Report) ) raised quarterly guidance by a whopping $4 billion from $7 to $11 billion. A guidance raise of that magnitude is unprecedented and likely means that the trend is closer to the beginning, not the end. Analysts agree – for the next three quarters, Zacks Consensus Estimates suggest that the AI leader will achieve blistering triple-digit EPS growth year-over-year.
Image Source: Zacks Investment Research
Bad News is No News: “It’s not the news that’s important, but rather the markets’ reaction to the news.” If you believe that statement as I do, Wednesday’s action was telling. Tuesday night, news broke that the Biden administration is considering new curbs on AI chip exports to China. Despite the negative headlines, Nvidia and Advanced Micro Devices ((AMD - Free Report) ) took the news in stride, barely flinching.
Image Source: TradingView
Holding Gains: Often, investors can glean more from pullbacks than advances. AI-related leaders such as Rambus ((RMBS - Free Report) ) and Super Micro Computer ((SMCI - Free Report) ) are retreating in an orderly fashion – an indication that investors are in no rush to sell. Furthermore, volume is decreasing on the pullback, signaling that selling is dissipating.
Image Source: TradingView
Unprecedented User Growth: Chat GPT is the fastest-growing consumer app in history. In just five days’ time, ChatGPT grew to 1 million users. Since then, user growth has exploded to over 100 million, according to the latest data. Though ChatGPT’s blistering growth is impressive, it may just be the start. Using Meta Platform’s (META) Instagram (the second fastest to 1 million users) as a precedent, early user growth of this magnitude lasts for years, not days.
Takeaway
Don’t fret if you’ve missed out on the AI move of 2023 so far. If one dissects the fundamental and technical picture in the AI industry currently, it suggests that a long runway lies ahead. Remember, a mega-trend like AI typically lasts years, not days, and trends tend to persist much longer than most anticipate.