Investing in the latest developments in artificial intelligence (AI) has been a wild ride over the past year or so. However, over the past few weeks, investors have had that sinking feeling as many of the stocks in the space lost altitude. The combination of a rapid rise in stock prices and uncertainty heading into earnings season led to the downfall, though many believe the decline to be temporary. Market watchers have been looking for any sign that the downward pressure could be easing and may have found a reason to be optimistic today.
With that as a backdrop, data mining and analytics provider BigBear.ai (BBAI -2.01%) soared 9.3%, AI server specialist Super Micro Computer (SMCI +4.54%) surged 6.3%, chipmaker Arm Holdings (ARM +3.92%) jumped 3%, AI solutions provider C3.ai (AI -4.04%) climbed 3.3%, and Micron Technology (MU +6.10%) gained 2.9%, as of 12:56 p.m. ET on Tuesday.
A check of all the usual suspects -- regulatory filings, financial reports, and changes to analysts' price targets -- turned up nothing in the way of company-specific news driving any of these AI stocks higher. This suggests that many investors focused on developments for one of the biggest names in AI, chipmaker Nvidia (NVDA +0.84%).
Image source: Getty Images.
A sign of continuing demand
FPT, a top technology firm in Vietnam, announced a comprehensive strategic partnership with Nvidia, according to a press release that dropped Tuesday morning. The goal of the collaboration is to offer its customers a "one-stop shop for AI and cloud" and will include "AI products, [graphics processing unit] infrastructure, tech experts, and domain expertise" for its customers in Vietnam and throughout the region.
The centerpiece of this plan is to invest $200 million to build an AI factory and cloud facility, which will feature Nvidia's latest AI technology, including its H100 Tensor Core GPUs and enterprise software and frameworks. FPT plans to prioritize three key industry verticals: automotive, manufacturing, and banking, financial services, and insurance, providing "end-to-end generative AI services."
While this might seem like a small development in the grand scheme of things, it does provide evidence that the demand for AI continues to spread. Furthermore, as FPT's customers begin to adopt AI, this will open up additional opportunities for Nvidia to sell its products and services.
Nvidia announced late last year that it planned to expand its presence in Vietnam.
NASDAQ: SMCI
Key Data Points
A tenuous connection
While this is arguably good news for Nvidia, what does this have to do with our quintet of AI stocks? The broader and continuing adoption of AI is good news for all the stocks in the space. While there are more concrete benefits for some, others are more tenuous.
- Super Micro Computer makes premium AI-enabled servers that are both energy-efficient and highly customizable. Nvidia is one of the key suppliers of AI processors to Supermicro.
- Arm Holdings licenses some of the architecture and designs included in Nvidia's high-end AI chips. The company gets royalties and license revenue from the sale of Nvidia's AI-powered processors.
- Micron Technology provides memory and storage solutions that are also integral parts of Nvidia's gold-standard AI chips. It benefits directly from increasing demand for the processors.
- C3.ai offers turnkey AI solutions designed to help enterprises adopt AI and get AI-fueled applications up and running quickly.
- BigBear.ai provides decision intelligence solutions that could experience increased demand driven by the willingness of enterprises to adopt AI.
It's important to remember that not all companies in the AI space are created equal. This factor will become even more important as time goes on, as investors will demand that they live up to the promise of AI by generating revenue and profits. Of the five, BigBear.ai and C3.ai aren't currently profitable.
NASDAQ: ARM
Key Data Points
Then, there's the matter of valuation. Arm Holdings is the most expensive of the three at 20 times forward sales, while Micron and Supermicro are currently selling for 3 times and 2 times forward sales, respectively.
For my money, Supermicro is the least risky of the stocks listed here. Not only does it have the most attractive valuation among the companies that generate a profit, but it also generated blockbuster financial results fueled by the surge in demand for AI. That said, I believe Arm Holdings and Micron Technology both represent compelling opportunities, while C3.ai and BigBear.ai have yet to live up to their potential.
