Yahoo Finance Zacks Investment Ideas feature highlights: Nvidia, Meta Platforms, Vistra, Super Micro Computer and Arm Holdings
For Immediate Release
Chicago, IL – June 5, 2024 – Today, Zacks Investment Ideas feature highlights Nvidia NVDA, Meta Platforms META, Vistra VST, Super Micro Computer SMCI and Arm Holdings ARM.
A.I. Bull Market: 5 Lessons to Learn
Though investors may have forgotten by now, the 2022 tech bear market was brutal for U.S. equities. The sugar high from government spending led to several adverse factors. Forty-year highs in inflation spurred Federal Reserve Chairman Jerome Powell to change the Fed's multi-year (and seemingly never-ending) "Dovish" monetary stance to a complete 180-degree turn.
In an attempt to quell rampant inflation and provide an oasis for the regional banking sector (which was on the brink of failure), Powell hiked interest rates at a dizzying speed. In turn, high-valuation growth stocks got pummeled, and the Nasdaq 100lost a third of its value.
Capitalism to the Rescue in the form of AI Stocks
Though the bear market was brutal for Wall Street, America's history illustrates that bear markets ultimately transform into opportunities for investors wise enough to have liquidity. That's because America's best and brightest minds never stop innovating. In other words, innovation leads to earnings growth, and EPS growth sparks share prices.
ChatGPT Launch Changes the Game
The launch of OpenAI and ChatGPT Artificial Intelligence (AI) chatbot marked the turning point for the tech sector and the U.S. equities market. Within weeks of its launch, ChatGPT grew like wildfire and became the fastest consumer software app to eclipse the 100-million user mark in history.
Though there are no signs that the AI revolution is slowing, investors should learn lessons from what we have seen thus far -- because history tends to repeat itself.
5 Lessons to Learn from the AI Stock Boom
1. Invest in Leaders, Avoid Laggards
When a mega-trend captures the public's interest, it can be easy for investors to be less selective. For example, in the heat of the internet bubble in the late 1990s, investors bid up any stock with a ".com" in its name. However, over time, the institutional-backed stocks with solid fundamentals and robust earnings growth provide the most sustainable moves. For example, Nvidia, which is up nearly 200% over the past year, has grown EPS at a juicy triple-digit clip for four straight quarters and has deep-pocketed institutional backers like Fidelity.
Conversely, unprofitable, non-institutional quality AI companies are dramatically underperforming tech leaders like Meta Platforms.
2. Look for Companies Selling "The Picks and Shovels"
During the gold rush, innovative entrepreneurs became rich by selling the picks and shovels rather than searching for the gold itself.
Again, history repeats itself on Wall Street. Investors are beginning to understand how much energy will be required to run the data centers needed for the AI revolution. Utilities like Vistra are all less obvious ways savvy investors have cashed in on the rush.
3. Trends Tend to Persist
Growth investing legend William O'Neil once pointed out, "It is one of the great paradoxes of the stock market that what seems too high usually goes higher, and what seems too low usually goes lower." I have found this quote to be accurate. Investors do not need to catch bottoms to be successful. Instead, they can latch on to momentum trades and manage downside risk.Super Micro Computer gained nearly 250% in 2023. However, the stock was far from done. SMCI quadrupled in early 2024 before retreating recently.
4. Valuation is Not a Timing Tool
An important lesson is that valuation metrics like the price-to-sales (P/S) ratio are not a valid timing tool – especially for innovative growth stocks. While the numerator (price) is known, the denominator (sales) is not known (moving forward).
Because of this misconception, Zacks Investment Research heavily weights its analysis and ratings based on forward EPS expectations. Amateur investors would probably be surprised to find that NVDA's p/s has actually fallen since mid-2023 despite the massive bull move in the stock.
5. Moving Averages are a Trend Guide
The 10-week moving average is a fantastic trend guide for intermediate growth investors because institutional investors tend to support stocks at this level if they intend to increase their position. AI play Arm Holdings is a perfect example of the power of the 10-week average. Investors who only held onto the stock when it trended above the 10-week captured much of the gains while avoiding disaster.
Bottom Line
Each moment on Wall Street is unique. However, history tends to rhyme when it comes to megatrends.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
ARM Holdings PLC Sponsored ADR (ARM) : Free Stock Analysis Report
Super Micro Computer, Inc. (SMCI) : Free Stock Analysis Report
Vistra Corp. (VST) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
