There's little question that the catalyst that sparked the current bull market rally is artificial intelligence (AI). The AI gold rush that kicked off last year is gathering steam, but market watchers continue to question the resilience of this upward momentum. However, robust results from one company provided a lift for a number of AI stocks.
With that as a backdrop, audio AI specialist SoundHound AI (SOUN 5.77%) surged 13.6%, chipmaker Nvidia (NVDA 6.18%) climbed 4.9%, and social media maven Meta Platforms (META 0.43%) climbed 2.4%, as of 1:47 p.m. ET.
A check of all the usual suspects -- financial reports, regulatory filings, and changes to analysts' price targets -- turned up nothing in the way of catalysts to explain the move higher. This seems to suggest that it was the results of another company that drove AI stocks upward.
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Evidence the adoption of AI is spreading
The catalyst that seems to have sparked a rally among AI stocks was a surprisingly strong earnings report from database specialist Oracle (ORCL 2.02%). The results provided evidence that demand for AI is spreading.
For its fiscal 2024 third quarter (ended Feb. 29), Oracle reported revenue of $13.3 billion, which grew 7% year over year, resulting in adjusted earnings per share (EPS) of $1.41, up 16%. While that might not seem like much to write home about, the devil is in the details, with two items of particular interest.
Oracle's cloud revenue was the headliner, growing 25% year over year to $5.1 billion. Even more impressive was the company's cloud infrastructure results, which climbed 52% year over year. This outpaced the growth of Amazon Web Services, Alphabet's Google Cloud, and Microsoft Azure -- also known as the "Big Three" cloud providers -- which grew 13%, 26%, and 30%, respectively. This suggests that either Oracle took market share from its closest cloud competitors, or that demand for cloud services is growing -- though both could be true.
Furthermore, the company's remaining performance obligation (RPO), or contractually obligated sales not yet booked as revenue, surged 29% to $80 billion. Since RPO gives insight in future revenue trends, this suggests Oracle's sales growth seems destined to continue.
Oracle CEO Safra Catz also noted that AI cloud capacity "substantially exceeds supply." As a result, Oracle is "opening new and expanding existing cloud data centers very, very rapidly."
The chief executive also noted the company recently signed a "big Generation 2 cloud infrastructure contract with Nvidia" in the third quarter, but also hinted there's more on the docket. "We expect to have some very nice joint announcements with Nvidia next week" during Nvidia's GPU Technology Conference (GTC).
This all but confirms that it was the accelerating demand for AI that boosted Oracle's results, which has broader implications for other companies in the AI space.
Profiting from AI
We're only just beginning to comprehend just how prevalent generative AI will be, but these highlighted companies have each carved out a niche for themselves in the AI gold rush:
- SoundHound AI creates AI-powered voice and audio solutions serving the restaurant and automotive industries. The company's tools can be used for restaurant drive-thrus, phone banks, and self-serve kiosks, among others.
- Nvidia provides the graphics processing units (GPUs) with the computational horsepower required by AI systems. The company has generated triple-digit year-over-year sales growth in each of the preceding three quarters thanks to growing demand for AI.
- Meta Platforms has long used AI to advance its business, surfacing relevant content to its social media users, as well as directing its targeted advertising efforts. Meta also developed LLaMA AI, one of the most in-demand large language models available on the major cloud infrastructure sites.
Each of these stocks is relatively inexpensive, depending on your favored valuation metric. Meta and Nvidia currently sell for 25 times and 36 times forward earnings, respectively, making them the standout choices -- particularly given their history of strong growth. SoundHound AI isn't yet profitable and sells for 20 times sales, making it more expensive and certainly riskier.
The trend toward AI adoption is unmistakable, offering investors plenty of ways to profit from the AI revolution.
