Yahoo Finance The Next AI Bull Run Just Started: 3 Top Ranked Stocks to Ride the Trend
Yes, I know the last year has been all AI every day, but this theme is still early days. Exciting new products built from generative AI models are just beginning to come to market and will continue to change the way we interact with technology.
Just this week there were two significant releases from both Microsoft’s MSFT OpenAI, and Alphabet GOOGL.
Additionally, now that broad markets have traded sideways for the better part of two months, energy has been built for a major breakout in the leading names. These product releases should be a valuable catalyst for the next big rally.
New AI Product Releases
OpenAI introduced the newest iteration of their primary AI model, GPT-4o. The demonstrations of GPT-4o were extremely impressive, with one video showing the AI model interacting with and tutoring a young boy on his math homework.
The GPT, young boy and father were all in conversation with each other, and the GPT helped him through the process in a supportive and logical way. It was really something, and I recommend those interested seek out some of the most recent demonstrations released online.
Then, at Google I/O, Alphabet’s annual developer conference, the company introduced its newest AI enabled “Agents,” built throughout its platforms. This product is built on Gemini, Alphabet’s response to OpenAI’s GPT.
In one demo, the presenter wanted to return a pair of shoes they bought online. They took a picture of them, and said to the agent, “I want to return these shoes, they don’t fit.” Gemini proceeded to find the order info in Gmail, fill out a return form, and scheduled a pickup from UPS. It really functioned like a personal assistant.
The presentation also showed Gemini agents planning detailed trips catered to specific interests, summarizing long email chains, and working across multiple external websites to really simplify workflow.
Again, I recommend those interested go watch the demo videos.
Stock Picks
For this next bull run in AI stocks, my favorite player is Alphabet GOOGL. Many analysts and commentators have been very loud about how Google is playing catch up in AI, or that GPTs are going to disrupt Google's search engine.
They have forgotten just how deeply entrenched Alphabet’s products are in daily life. Alphabet has nine products with more than 1 billion users along with the epic amounts of data and engineers to implement the new technology.
Furthermore, Alphabet enjoys both a Zacks Rank #1 (Strong Buy) rating, and a compelling technical trading setup.
GOOGL stock just broke out from a bull flag and looks ready to make new YTD highs.
Alphabet also has also has a very reasonable valuation, trading at 22.5x forward earnings, which is in line with the market average and below its 10-year median of 26.2x.
Image Source: TradingView
My next AI stock recommendation is not very original. Nvidia NVDA, has been and is the name to own for the trend in AI. The company is simply years ahead of other semiconductor producers, and its data center chips remain the key piece of infrastructure for technology being built with generative AI.
Nvidia also jumped back onto the Zacks Rank this morning with a Zacks Ranks #1 (Strong Buy) rating. Analysts have unanimously raised earnings estimates, with FY25 increasing by 7% in the last two months.
And even with all the talk of Nvidia being wildly overpriced, the stock remains reasonably valued thanks to the massive growth of sales and earnings. Today, Nvidia is trading at 40x forward earnings, just below the industry average and its 10-year median.
EPS are also forecast to grow at an incredible 30% annually over the next 3-5 years.
NVDA stock, like GOOGL, also just broke out from a clean bull flag. As the leading name in AI, I would expect Nvidia to run to new highs in no time.
Image Source: TradingView
My final AI stock pick for the next leg higher is Arista Networks ANET. Lesser known than the other two tech giants shared, Arista Networks is a leading provider of cloud networking solutions for large data centers. The company specializes in designing and delivering high-performance network switches and software-defined networking (SDN) solutions that offer scalability, reliability, and programmability.
Arista Networks plays a crucial role in providing the networking infrastructure necessary to support AI workloads and applications. As AI models become increasingly complex and data-intensive, they require robust and high-speed network connections to transfer data between servers, storage systems, and other components of the AI infrastructure.
The Artificial Intelligence boom has been and will continue to be a major boon to Arista’s core business.
Like the others, ANET also has a Zacks Ranks #1 (Strong Buy) rating, reflected by strongly upward trending earnings revisions.
Arista Networks stock has actually shown relative strength during the recent selloff, and over the last two and a half months it has gained more than both Nvidia and Alphabet. Because I am a fan of momentum, I consider this relative strength to be very bullish, especially in this AI context.
Image Source: Zacks Investment Research
Bottom Line
Don’t sleep on the AI boom, because we are still early days. Keen investors will continue to be given opportunities to profit from this new technology, so keep your ears to the ground, focus on stocks with top Zacks Ranks, and be a prudent risk manager.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
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Arista Networks, Inc. (ANET) : Free Stock Analysis Report
