fbpx

Artificial Intelligence Stocks: Part One, Hardware

David SharekArtificial Intelligence (AI) spending is in full swing, and the momentum looks to continue well into 2025. Global capital spending for the top 12 cloud computing providers is is expected to rise 55% this year and perhaos 40% to 42% in 2025 (source: Hehdi Hosseini, Susquehanna).

AI stocks mainly consist of two categories: Hardware & Software. Organizations must get advanced computers in place, then have code written to take advantage of the AI opportunities. So spending is first done on the hardware side, which is happening now.

This month, we will focus on what I believe are the top AI hardware stocks in the stock market, and we start things off with the AI leader: NVIDIA (NVDA).

 

NVIDIA (NVDA) was originally focused on the computer graphics market, and invented the first graphics processing unit (GPU) in 1999 which made the company the leader in computer graphics.

It has since expanded its architecture to scientific computing, artificial intelligence, data science, autonomous vehicles, robotics, and virtual reality (or AR).

NVIDIA’s rapid growth is driven by its Data Center segment, due to the strong demand for Generative AI platforms.

NVDA is the king of AI and profit growth is expected to continue into 2025. Stock has nice upside too.

NVDA stock has a P/E of 41. My Fair Value is a P/E of 45. This gives me a Fair Value of $128 for this year and $181 by next year.

Also, 2025 estimates have been climbing. So I may be underestimating the profit figure at this time.

NVIDIA is the top holding in my Growth Portfolio and Aggressive Growth Portfolio.

Advanced Micro Devices (AMD) is a semiconductor company focused on high-performance computing technology, software, and products.

It develops high-performance CPUs and GPUs and integrates these with hardware and software. CPUs are used for client systems, high-performance computing, and cloud computing. GPUs are used for gaming, artificial intelligence, and virtual reality.

AMD is just getting into the AI processor race. It has a new GPU that just launched and is in good demand, especially from Microsoft (MSFT).

My Fair Value for AMD remains at P/E of 35, which makes the stock overvalued in my opinion. But when we look to 2025 the stock has nice upside. I imagine the stock could go to $190 in a year or so.

AMD is part of our Growth Portfolio.

Broadcom (AVGO) is a semiconductor and software company that designs thousands of products for home connectivity, cloud data centers, and enterprise businesses.

The majority of Broadcom’s silicon wafer manufacturing operations are designed in North America or Europe, then outsourced by the company to external foundries in Asia, such as Taiwan Semiconductor.

AVGO manufactures lots of parts needed for AI and can also create AI systems utilizing components from various vendors. Note that AVGO’s profit growth is set to accelerate.

AVGO stock has been undervalued for a decade now. My Fair Value P/E for this stock is 30. And the stock has a 26 P/E right now.

AVGO is part of our Growth Portfolio and Aggressive Growth Portfolio.

Vertiv (VRT) provides hardware, software, and services infrastructure for data centers, communication networks, and commercial & industrial applications.

The company provides AC and DC power management products, thermal management products, integrated rack solutions, and management systems for maintaining these systems.

Vertiv is currently expanding its liquid cooling production, and expects to have 45x the capacity as 2023. Liquid cooling is in high demand by datacenters as does a superior job cooling servers than air cooling.

Power management and thermal management orders grew at very similar rates last qtr, and both were “convincingly strong”.

VRT is putting everything together with wall units that utilize liquid cooling instead of air cooling. Liquid cooling is more energy efficient.

My Fair Value is a P/E of 35, which is a fair value of $89. The stock seems a little undervalued right now, with 44% upside when we look out to next year.

VRT is part of the Growth Portfolio.

Supermicro Computer (SMCI) is a Silicon Valley-based manufacturer of server and storage systems for enterprise data centers, cloud computing, artificial intelligence (AI), 5G, and edge computing. It is the only US-based large-scale AI platform designer and manufacturer.

SMCI is similar to VRT but this company is being proven by the Department of Justice (DOJ) for accounting issues.

This stock could rock once it gets past the DOJ if everything is ok. Note that annual profit growth has been exceptional.

This stock historically had a low P/E as it has been in a low-margin business. This quarter the stock has a 17 P/E if we look at 2025 profit estimates. My Fair Value is a P/E of 25 which is $856 a share, much higher than the recent price of $567.

SMCI is a top holding in my Growth Portfolio and Aggressive Growth Portfolio.

Not a member? Sign up here for $25 a month.