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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 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 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, 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,Super Micro Computer, Arm Holdings 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 not 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.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Microsoft, Alphabet, Nvidia, Super Micro Computer and Arm Holdings
For Immediate Release
Chicago, IL – April 11, 2024 – Today, Zacks Investment Ideas feature highlights Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) , Nvidia (NVDA - Free Report) , Super Micro Computer (SMCI - Free Report) , and Arm Holdings (ARM - Free Report) .
A.I. Leaders Retreat: Generational Buying Opportunity?
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 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 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, 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,Super Micro Computer, Arm Holdings 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 not 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.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.