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Broad markets are breaking out to new highs, and so are the leading Artificial Intelligence stocks. Although some investors may think of the providers of AI software like Microsoft (MSFT - Free Report) or Alphabet (GOOGL - Free Report) , the real winners of this new trend are the semiconductor producers.
Owning chipmakers means owning the infrastructure for this burgeoning industry – it’s called a pick and shovels approach and involves investing in the underlying technology rather than the end product.
When following a new secular megatrend like Artificial Intelligence there is no need to overcomplicate the approach. Leaders lead and although it may feel hard to pay up for something that has already rallied considerably it will probably continue to be the most important stock in the industry.
Yes, I am talking about Nvidia (NVDA - Free Report) , which is one of the stocks I will be sharing here, but there are two additional names that are less followed and are flying much lower on investors radar.
Cadence Design Systems
While the spotlight often shines on the flashy AI companies developing the next big algorithms, a crucial element gets overlooked: the foundation upon which it's all built. Enter Cadence Design Systems (CDNS - Free Report) . They're not creating the AI itself, but they're the architects behind the semiconductors that make it possible.
Cadence Design Systems is a multinational technology company specializing in Electronic Design Automation (EDA) software. EDA software is a critical toolset used by engineers in the design and verification of integrated circuits (ICs), often referred to as microchips. These ICs are the fundamental building blocks of modern electronics, powering everything from smartphones and laptops to complex medical devices and data centers. By providing the software that facilitates IC design, Cadence plays a crucial role in the development of the technology that underpins our digital world.
So, although AI is a fantastic new catalyst for Cadence’s business, they have been extremely successful already up until this point. The stock has steadily climbed higher, reflected by powerful earnings and sales growth, more than 20xing investors money in the past 10 years.
Image Source: TradingView
The recent rally in the stock is also bolstered by a Zacks Rank #1 (Strong Buy) rating, indicating upward trending earnings revisions. In the chart below we can see FY24 and FY25 estimates curling higher.
Analysts have increased this year’s earnings and next year’s projections by 3% and 7.7% respectively in the last month. Over the next 3-5 years EPS are expected to climb by an impressive 17% annually.
Image Source: Zacks Investment Research
With all these favorable developments it is no surprise that the stock has been strong. Just this morning Cadence Design Systems’ share price pushed to new all-time highs. Additionally, as we can see below it broke out from this compelling bull flag, showing considerable price momentum.
Image Source: TradingView
Nvidia
We all know by now the Nvidia story – it has been the stock to own over the last year and has appreciated an incredible 250% over that time reaching a $2 trillion market cap. While it is unlikely that Nvidia stock will maintain that blistering pace higher, it is in fact still the AI stock to own.
Nvidia produces the data centers and infrastructure which are critical to technology companies utilizing generative AI technology, and they are still way ahead of the competition in terms of computing power.
Nvidia also enjoys a Zacks Rank #1 (Strong Buy) rating, which it has maintained for the better part of the last year, and contrary to its loudest critics still maintains a fairly reasonable valuation.
As of today, Nvidia has a one year forward earnings multiple of 37.9x, which is below its 10-year median of 41.8x. Additionally, its EPS are expected to climb at an annual rate of 30% over the next 3-5 years.
This explosion in valuation reflects what has been a parabolic move higher in sales at the Nvidia.
Image Source: Zacks Investment Research
Below, we can see that Nvidia stock just broke out from another convincing bull flag. Because some investors remain skeptical of these moves in Nvidia, utilizing these technical trading setups can aid in measuring risk and identifying when and where you may want to stop out and wait for another opportunity.
Image Source: TradingView
ARM Holdings PLC Sponsored ADR
One of the newer additions to the publicly traded semiconductor industry is ARM Holdings PLC Sponsored ADR (ARM - Free Report) .
ARM Holdings is a British semiconductor and software design company founded in 1990 and majority owned by Softbank. Known for its development of advanced microprocessor technology, ARM designs and licenses its intellectual property for use in smartphones, tablets, and embedded systems worldwide.
In addition to its dominance in mobile computing, ARM has also made significant strides in artificial intelligence development, optimizing its architecture for efficient execution of machine learning algorithms. These advancements position ARM as a key player in both the semiconductor and AI ecosystems, driving innovation across various industries.
Although it is a new stock, analysts have already begun to raise earnings estimates, giving ARM Holdings a Zacks Rank #1 (Strong Buy) rating. Top of Form
Analysts have unanimously upgraded their forecasts for ARM, with current quarter earnings increasing by 43%, and next quarter by 20%.
Image Source: Zacks Investment Research
ARM Holdings has enjoyed some nice momentum since its IPO and following its earnings report in early February exploded more than 100% higher. Since then, the stock has formed a massive bull flag, and just today broke out from the pattern.
Image Source: TradingView
Bottom Line
Each of these stocks represents some of the best opportunities to get exposure to the AI theme, but also to own fantastic companies. The technical trading setups supported by the earnings revisions trend should help investors identify exciting investments, and carefully manage risk.
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AI Momentum: 3 Top Ranked Stocks Breaking Out Now
Broad markets are breaking out to new highs, and so are the leading Artificial Intelligence stocks. Although some investors may think of the providers of AI software like Microsoft (MSFT - Free Report) or Alphabet (GOOGL - Free Report) , the real winners of this new trend are the semiconductor producers.
Owning chipmakers means owning the infrastructure for this burgeoning industry – it’s called a pick and shovels approach and involves investing in the underlying technology rather than the end product.
When following a new secular megatrend like Artificial Intelligence there is no need to overcomplicate the approach. Leaders lead and although it may feel hard to pay up for something that has already rallied considerably it will probably continue to be the most important stock in the industry.
Yes, I am talking about Nvidia (NVDA - Free Report) , which is one of the stocks I will be sharing here, but there are two additional names that are less followed and are flying much lower on investors radar.
Cadence Design Systems
While the spotlight often shines on the flashy AI companies developing the next big algorithms, a crucial element gets overlooked: the foundation upon which it's all built. Enter Cadence Design Systems (CDNS - Free Report) . They're not creating the AI itself, but they're the architects behind the semiconductors that make it possible.
Cadence Design Systems is a multinational technology company specializing in Electronic Design Automation (EDA) software. EDA software is a critical toolset used by engineers in the design and verification of integrated circuits (ICs), often referred to as microchips. These ICs are the fundamental building blocks of modern electronics, powering everything from smartphones and laptops to complex medical devices and data centers. By providing the software that facilitates IC design, Cadence plays a crucial role in the development of the technology that underpins our digital world.
So, although AI is a fantastic new catalyst for Cadence’s business, they have been extremely successful already up until this point. The stock has steadily climbed higher, reflected by powerful earnings and sales growth, more than 20xing investors money in the past 10 years.
Image Source: TradingView
The recent rally in the stock is also bolstered by a Zacks Rank #1 (Strong Buy) rating, indicating upward trending earnings revisions. In the chart below we can see FY24 and FY25 estimates curling higher.
Analysts have increased this year’s earnings and next year’s projections by 3% and 7.7% respectively in the last month. Over the next 3-5 years EPS are expected to climb by an impressive 17% annually.
Image Source: Zacks Investment Research
With all these favorable developments it is no surprise that the stock has been strong. Just this morning Cadence Design Systems’ share price pushed to new all-time highs. Additionally, as we can see below it broke out from this compelling bull flag, showing considerable price momentum.
Image Source: TradingView
Nvidia
We all know by now the Nvidia story – it has been the stock to own over the last year and has appreciated an incredible 250% over that time reaching a $2 trillion market cap. While it is unlikely that Nvidia stock will maintain that blistering pace higher, it is in fact still the AI stock to own.
Nvidia produces the data centers and infrastructure which are critical to technology companies utilizing generative AI technology, and they are still way ahead of the competition in terms of computing power.
Nvidia also enjoys a Zacks Rank #1 (Strong Buy) rating, which it has maintained for the better part of the last year, and contrary to its loudest critics still maintains a fairly reasonable valuation.
As of today, Nvidia has a one year forward earnings multiple of 37.9x, which is below its 10-year median of 41.8x. Additionally, its EPS are expected to climb at an annual rate of 30% over the next 3-5 years.
This explosion in valuation reflects what has been a parabolic move higher in sales at the Nvidia.
Image Source: Zacks Investment Research
Below, we can see that Nvidia stock just broke out from another convincing bull flag. Because some investors remain skeptical of these moves in Nvidia, utilizing these technical trading setups can aid in measuring risk and identifying when and where you may want to stop out and wait for another opportunity.
Image Source: TradingView
ARM Holdings PLC Sponsored ADR
One of the newer additions to the publicly traded semiconductor industry is ARM Holdings PLC Sponsored ADR (ARM - Free Report) .
ARM Holdings is a British semiconductor and software design company founded in 1990 and majority owned by Softbank. Known for its development of advanced microprocessor technology, ARM designs and licenses its intellectual property for use in smartphones, tablets, and embedded systems worldwide.
In addition to its dominance in mobile computing, ARM has also made significant strides in artificial intelligence development, optimizing its architecture for efficient execution of machine learning algorithms. These advancements position ARM as a key player in both the semiconductor and AI ecosystems, driving innovation across various industries.
Although it is a new stock, analysts have already begun to raise earnings estimates, giving ARM Holdings a Zacks Rank #1 (Strong Buy) rating. Top of Form
Analysts have unanimously upgraded their forecasts for ARM, with current quarter earnings increasing by 43%, and next quarter by 20%.
Image Source: Zacks Investment Research
ARM Holdings has enjoyed some nice momentum since its IPO and following its earnings report in early February exploded more than 100% higher. Since then, the stock has formed a massive bull flag, and just today broke out from the pattern.
Image Source: TradingView
Bottom Line
Each of these stocks represents some of the best opportunities to get exposure to the AI theme, but also to own fantastic companies. The technical trading setups supported by the earnings revisions trend should help investors identify exciting investments, and carefully manage risk.