The stock market has been in turnaround mode in 2023 after the severe beating it took last year, on account of rising inflation and the Federal Reserve's interest rate hikes to control it, and this is evident from the 18% jump in the S&P 500 index.
Some market watchers believe that the S&P 500 is in a bull market phase now (others contend a bull market doesn't start until the S&P 500 also hits a new all-time high). The index has jumped 27% since hitting a low on Oct. 12, 2022, and the run-up is expected to continue in 2024 as well. The S&P 500 is expected to test new highs (it's just 5.4% below the previous high) on the back of growing corporate profits that could give stocks a boost.
Artificial intelligence (AI) will play a central role in boosting the profits of companies next year. We have already seen that the likes of Nvidia, Microsoft, and Oracle are getting a shot in the arm because of AI. With AI impacting multiple industries and opening new growth opportunities for companies, now would be a good time to take a look at one name that's likely to benefit big time from the adoption of this technology in 2024.
Intel could witness a nice turnaround thanks to AI
Intel (INTC -1.63%) stock shot up an impressive 69% so far in 2023, which may seem a bit surprising at first, given that the chipmaker's top and bottom lines have been heading lower in recent quarters on account of a weak personal computer (PC) market.
INTC Revenue (TTM) data by YCharts
Wall Street, however, is turning positive about Intel's prospects in the booming market for AI chips. Mizuho Securities recently upgraded Intel stock to buy from neutral and raised the price target to $50 from $37. Analyst Vijay Rakesh believes that Intel's upcoming data center and AI chips that are set to hit the market in 2024 could turn out to be a tailwind for the company's business.
As it turns out, the demand for Intel's AI chips is apparently so strong that it is having a hard time meeting it. CEO Pat Gelsinger remarked on the company's October earnings conference call that Intel is "focused on having enough supply to meet our growing demand."
The company's data center and artificial intelligence (DCAI) business group exceeded expectations last quarter. Intel points out that the top 10 cloud service providers (CSPs) are now using its fourth-generation Xeon processor that's capable of AI model inferencing. Intel says that more than a third of its fourth-gen Xeon processor shipments were "directly related to AI applications" in Q3, up from 25% in the second quarter.
The company is looking to build upon this traction by launching new chips in 2024 that are expected to be significantly faster than the fourth-gen Xeon processors. For instance, Intel claims that its next-gen server processors could be two to three times faster. Also, the demand for Intel's AI accelerator, known as Gaudi, is increasing at a nice pace, and the company claims to have doubled its customer pipeline for the same over the last three months.
Throw in the improvements in the PC market, and it isn't surprising to see why analysts are anticipating a 13% jump in Intel's revenue in 2024 to $56 billion following this year's estimated drop of 21%. The company's bottom line is expected to nearly double to $1.75 per share in 2024. All this indicates that Intel stock can sustain its impressive momentum next year and deliver more upside to investors as the bull market continues.
However, investors should also note that not all companies are making the most of AI adoption, so they may want to steer clear of this company, at least for now.
This cybersecurity company seems to have fallen behind in the AI race
Cybersecurity is one industry where AI adoption is expected to increase at a nice clip in the long run. According to an estimate from technology consulting firm SkyQuest, AI in cybersecurity could grow at an annual pace of 24% through the end of the decade, generating $94 billion in annual revenue in 2030.
There are a few cybersecurity companies that are taking advantage of this trend. Palo Alto Networks (PANW 0.68%), however, seems to have missed this gravy train, at least for now. The company released fiscal 2024 first-quarter results (for the three months ended Oct. 31) on Nov. 15, and the stock price fell 5% the following day as it lowered its full-year billings guidance.
Palo Alto now expects full-year billings to increase between 16% and 17% to a range of $10.7 billion to $10.8 billion, down from the earlier forecast of 19% to 20% growth. As billings are a gauge of a company's future revenue, Palo Alto's move to lower this metric didn't sit well with investors. Only 65% of Palo Alto's customers paid the company up front for its services last quarter, and they signed shorter deals, which has led to reduced revenue visibility.
Meanwhile, Palo Alto's competitors who already have a generative AI cybersecurity solution to offer to customers are growing at a faster pace. The demand for SentinelOne's AI-powered solutions, for instance, has allowed the company to build a strong customer base that's spending more money on its offerings. CrowdStrike is also seeing healthy demand for its Charlotte AI cybersecurity offering and is growing at a much faster pace than Palo Alto.
All this means there are better ways to tap the AI opportunity in the cybersecurity market than Palo Alto, which is why investors would do better to look elsewhere for now, as this cybersecurity specialist needs to step up its AI game so that it can make the most of the lucrative end-market opportunity on offer.
