2023-07-19 01:48:46 ET
Summary
- Advancement in AI has helped give tech stocks their best-performing first half of the year since 1983.
- Big-tech executives continue to remain bullish over the ongoing demand for AI.
- Wall Street analysts are now touting tech stocks in different market segments.
- The next-generation of AI companies could include cybersecurity, chipmakers and healthcare.
Despite experiencing challenging conditions throughout the first half of the year, Wall Street analysts and investors are touting technology stocks once again, after Artificial Intelligence ((AI)) helped tech stocks gain their best start to a year since 1983.
The tech-heavy Nasdaq Composite managed to jump by 32% during the first six months of the year, the best-recorded performance in the first half of the year in four decades, according to data provided by Bloomberg.
Further momentum for technology stocks comes after a series of earnings calls, with company executives and management showing increasing support for the progress of AI.
Enthusiasm for AI is being led by big-tech names, including Alphabet (GOOGL), Amazon (AMZN), Meta (META), and Microsoft (MSFT). Leaders mentioned AI a total of 168 times during earnings calls in April, Insider reported.
Strong momentum in the tech sector, predominantly led by the enthusiasm surrounding Artificial Intelligence is helping tech stocks find themselves on investors’ watchlists once again. However, many remain cautious amid the hype, after enduring challenging conditions throughout the latter half of last year.
The fork in the road
Resilience in the U.S. economy has further helped to lift investor sentiment, despite higher rates, and many fearing the possibility of the long-awaited recession.
Although Wall Street is not completely out of the woods just yet, bullish tech investors are hoping that the second remaining half of the year could provide them with promising returns and exciting market opportunities as Artificial Intelligence poses the potential for positive economic impact.
Looking at how investors are building their recession-resistant portfolios shows that AI stocks are not a singular option and tend to fall into one of two different categories.
The first category is blue-chip tech companies, which have over the last several years, perhaps months, invested heavily into the development of Artificial Intelligence. The companies are household names and have either invested or partnered with existing AI developers.
Second to this is smaller, and more experimental companies that are only taking off now against the backdrop of the AI boom. These companies are perhaps lesser-known in the marketplace, however, they tend to solely focus on AI development.
There are those tech bulls that invest directly into smaller experimental AI companies, giving them greater exposure to the marketplace, however, this tends to come with an increased level of financial risk, and portfolio exposure amid volatile conditions.
These companies may provide more advanced capabilities in terms of the software and tools they develop, but there will come a time when some of them will partner or perhaps even merge with more well-known big tech names, giving them more stability and infrastructure to operate on.
The diversified landscape of AI stocks
Just like the technology sector, the AI landscape is broad and diverse, lending investors the opportunity to choose from an array of AI companies to invest in.
Chipmakers
The multinational chipmaker Nvidia (NVDA) has experienced a stellar year of performance, largely driven by its AI-powered growth. Shares of Nvidia have soared by 195% this year, helping the company navigate the challenging personal computer marketplace.
Tensions between the U.S. and China have left the company having to find ways around the restrictions imposed by the Commerce Department in October 2022. The restrictions have prevented the company from shipping advanced AI chips to China, however, Nvidia found itself introducing a new data center GPU which aligned with the federal government’s regulations.
Micron (MU) is another AI-powered chipmaker that has reported better-than-expected Q3 2023 results.
Headwinds caused by political tension and restrictions on chip exports to China have created challenging business conditions for the company, however, demand for memory chips, largely driven by the AI momentum, is helping the company keep on track with its full-year fiscal performance.
MU shares have climbed by more than 20% to date, and already analysts at Goldman Sachs have weighed in on the potential Micron has for investors looking to hold a long-haul position.
Robotics and Software
Elsewhere, robotics and software see further potential, largely driven by consumer and organizational demand for AI products and services.
Focus on supply chain and warehouse automation through AI-powered capabilities has made Symbiotic (SYM) a strong contender for the tech bulls looking to jump onto the bandwagon.
For starters, SYM shares are near dirt-cheap, with a day range of $40.30 - $43.10, and currently seeing year-to-date (YTD) performance already up by more than a staggering 240%.
Analysts remain on the fence. One side of the choir is singing to the tune that SYM could see a major upside in the coming months, giving it a Strong Buy rating. Elsewhere, analysts feel that the company could find itself having to navigate further challenges after it reported a $0.10 loss per share, above Zacks Estimates of $0.06 per share, during its Q2 2023 earnings report .
The upside potential lies perhaps in the long-term, rather than looking at near-term performance. Symbiotic could potentially become the leader in the AI-powered robotics warehouse technology market, however, investors will need to rely on tried-and-tested measures to understand where SYM could be heading.
On the software side, C3.ai Incorporated ((AI)) is perhaps challenging the way analysts and investors are viewing the current pace of AI development tools, especially in terms of how consumers can utilize software platforms such as IPRoyal, among other tools in the coming years.
C3.ai focuses on the development of AI-powered tools and software platforms, with stock market performance winning investors over for the last 18 months.
Already this year, C3.ai has soared by more than 245%, and during the last month, stock performance is up by roughly 6%. While C3.ai addresses a growing market and has a dedicated business model, it still sees moderate sales in terms of market valuation, which is expected to be roughly $300 million in revenue for the current fiscal year.
While there is big momentum for AI technology, compared to other companies such as Dish Network Corporation (DISH) and Newell Brands (NWL), considered to be the two smallest components in the S&P 500, both these companies still have a higher market value at under $4 billion each.
Looking from this point of view, there is potential upside for C3.ai, however, the company is currently burning through cash and recorded a net-loss of $2.45 per share for the fiscal year 2023.
Perhaps investors could be looking towards companies that have a more established track record in cybersecurity software. Names such as Palo Alto Networks ( PANW ) and CrowdStrike Holdings (CRWD) could hold more upside, and better long-term benefits for investors touting AI and technology stocks on the back of the ongoing hype.
Healthcare
One sector that has benefited at large from the AI and technology boom in recent years is medicine and healthcare.
Analysts expect the U.S. AI healthcare market to be worth more than $187 billion by 2031, however, these are still modest figures in terms of the fast-track development and deployment opportunities AI has within the broader healthcare and medicine industry.
Globally, there could be surging demand for AI-driven products and services in healthcare, from supply chain management, to surgical devices, and patient monitoring systems.
Already companies such as Intuitive Surgical (ISRG) are proving to be a growth stock ultimatum for seasoned investors looking to ride on the performance of the AI boom.
Intuitive designs and manufactures surgical robotic products that help to improve the clinical outcomes of patients. The most notable piece of machinery released by the company is the da Vinci Surgical System, a system used for prostatectomies and cardiac valve repair.
While Intuitive has a robust capital structure, Wall Street continues to remain skeptical over its estimates, citing that a high valuation could put the company at risk on the stock market.
However, its sensible business model could continue to be a winning strategy in the long term, helping to solidify strong growth over the next several years. Looking at its stock market performance, ISRG is up by 24% over the last six months, and between June and July, prices jumped by more than 5%.
The company continues to show signs of recovery after it experienced financial headwinds during the pandemic. Nonetheless, investors should continue with caution, as Wall Street treads lightly around the possibility of shares sinking in the latter half of the year.
Medtronic Plc. (MDT) is another name in the AI healthcare sector that is well-positioned for long-term growth, however, its undervaluation could make it a short-term hold for some investors that are looking to rather bet on other segments of the AI market.
In terms of stock market performance, share prices have increased by more than 9% to date, however year-over-year (YoY) price movements indicate that MDT is down by 3%.
While Medtronic has invested in the development of AI-powered services and products, in the bigger scheme of things, it continues to operate as a medical device company, which could lend itself to being a more defensive performer instead of an AI-focused pioneer.
Given how well the company has come out from the pandemic, followed by rising rates, and soaring costs due to inflationary conditions, Medtronic is a safer option for seasoned investors looking for more robust companies that can help cushion their portfolios in the wake of a sudden economic downturn.
Final thoughts
The coming months could present some positive upside for tech-hungry bulls. Already we’re seeing how Artificial Intelligence has helped tech stocks make remarkable strides, with companies having to navigate economic headwinds.
Yet, investors need to give consideration to the near-term outcomes, as many of these companies that are perhaps heavily invested in the development of AI are only lending partial investment to these technologies, and not completely changing course of direction.
This would mean in return, that investors need to look at AI-focused companies, but this comes with bigger risk exposure in terms of near-term growth.
Perhaps the safer option would be to diversify portfolio holdings between blue-chip companies that have established their presence, but keep a finger on the pulse for tech and AI companies that will eventually become pioneers in the red-hot AI industry.
For further details see:
Tech Bulls Continue Their Rally For These AI Stock Picks