Much of the market rally this year has been driven by excitement regarding artificial intelligence (AI) and the growing number of potential applications for the technology. Conservative estimates place the market value of generative AI in the neighborhood of $1 trillion, while others are much higher. Companies at the leading edge of technology -- those providing the semiconductors and servers necessary to integrate AI -- have seen demand for their products soar, helping fuel the rally.
With that as a backdrop, AI-centric server maker Super Micro Computer (SMCI -1.42%) surged 12.2% this week, computer and server specialist Dell Technologies (DELL -1.50%) jumped 11.1%, memory and storage chipmaker Micron Technology (MU 0.88%) climbed 2.6%, and Nvidia (NVDA 0.25%) climbed 2% as of 12:52 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.
A number of intriguing developments helped push these AI stocks higher.
Image source: Getty Images.
All eyes on Nvidia
The biggest driver in the AI space over the past week has been Nvidia. It's well known that when shares of the chipmaker move, many other stocks in the AI space tend to follow suit -- whether there's company-specific news or not. And there's plenty going on with Nvidia stock. The company completed its high-profile stock split last week, which generated a great deal of excitement among investors.
Nvidia also received a bullish update from Wall Street, adding additional fuel to the fire. The notable commentary came courtesy of Rosenblatt Securities analyst Hans Mosesmann, who reiterated his buy rating on the stock and increased his price target to a Street-high $200. For those keeping track at home, this represents potential upside of 48% compared to Tuesday's closing price and would give Nvidia a market cap of nearly $5 trillion.
Demand for Nvidia's graphics processing units (GPUs) has been off the charts and market watchers are turning over every rock to see which AI-related company will be next to see its profits soar.
Other catalysts
There were other developments in the space that helped fuel the AI rally.
Morgan Stanley analyst Erik Woodring issued positive commentary about Dell, calling the stock a "Top Pick" after meeting with the company's management. The analyst went on to say that Dell would continue to outperform in 2024 on the back of its strong competitive position and the secular tailwinds represented by the growing market demand for AI-centric servers. Woodring maintained his outperform rating and $155 price target on the stock.
For its part, Micron got a vote of confidence from analysts at Wells Fargo, who maintained their buy rating on the stock, while increasing their price target to $190. That represents 24% upside compared to the stock's closing price on Tuesday. The analysts suggest the company is capable of generating earnings per share of $15, significantly higher than analysts' consensus estimates, which currently call for $8.87 for 2025.
On another front, Elon Musk also provided a boost for Dell and Supermicro, revealing that the two companies will be providing servers for AI start-up xAI, which is in the process of building a supercomputer to support its AI efforts. In a post on X (formerly Twitter), the enigmatic CEO wrote, "Dell is assembling half of the racks that are going into the supercomputer that xAI is building." In response to a question from another poster asking, "Whose [sic] building the other half?", Musk replied, "SMC [Super Micro Computer]."
Is it too late to buy?
There's an argument that each of these stocks represents a compelling opportunity. Micron, Super Micro Computer, and Dell are currently selling for 4 times, 2 times, and 1 times forward sales, a reasonable price to pay for three companies poised to profit from the accelerating adoption of AI.
Nvidia is the outlier. Thanks to the company's triple-digit sales and profit gains and the resulting stock price surge this year, the most widely used valuation metrics are useless. Nvidia's price/earnings-to-growth (PEG) ratio -- which takes that growth into account -- comes in at less than 1, the benchmark for an undervalued stock.
To be clear, the AI revolution is just getting started, and as such the stocks in the space will be even more volatile than usual. Investors don't want to miss out on one of the biggest opportunities in a generation, but many will buy and sell based on a whim and the latest rumors.
Those wanting to profit from these strong secular tailwinds would be better served to buy a basket of the best AI stocks they can find and hold for the long term.
