The excitement surrounding artificial intelligence (AI) has been a major driver of the stock market rally this year, with the market value of generative AI estimated to be around $1 trillion.
AI’s potential to enhance productivity and transform industries such as marketing, healthcare, and manufacturing has fueled a surge in demand for leading tech companies. This surge has significantly boosted the stock prices of firms specializing in semiconductors and servers.
In this context, Finbold analyzed the ongoing trends and tracked down the two best investments in the AI sector for the upcoming month.
Picks for you
ServiceNow (NYSE: NOW)
As companies increasingly digitize their operations to enhance efficiency, ServiceNow’s (NYSE: NOW) AI and machine learning-driven workflow solutions have positioned it as a market leader.
The company’s financial performance in Q2 was impressive, with subscription revenues rising by 23% on a currency-adjusted basis to $2.54 billion.
ServiceNow secured 88 high-value deals, each worth over $1 million in annual contract value, marking a 26% year-over-year increase, demonstrating strong demand among large enterprises.
Investors are particularly excited about ServiceNow’s integration of generative AI (GenAI), as the company aims to revolutionize workflows across industries with GenAI at its core.
Looking ahead, ServiceNow’s forward guidance is equally promising. The company expects Q3 sales to range between $2.66 billion and $2.665 billion, indicating a robust 20.25% annual growth at the midpoint.
Additionally, ServiceNow anticipates an operating income margin of 29.5%, reflecting strong operational efficiency. Valuation metrics also show the company’s potential, with a market cap of $169.66 billion and an enterprise value of $166.50 billion.
Despite high trailing and forward PE ratios of 149.93 and 55.85 respectively, the company’s PEG ratio of 2.89 suggests reasonable valuation given its growth prospects.
Analyst sentiment further supports the bullish outlook, with an average 12-month price target of $870.04, representing a 5.13% upside from the current price of $827.61.
High institutional ownership, at 90.72%, also highlights strong professional investor confidence, giving it a ‘strong buy’ rating.
Micron Technology (NASDAQ: MU)
Micron Technology (NASDAQ: MU) has experienced a remarkable 30% stock surge this year, driven by soaring demand for its high-performance memory modules from AI servers.
As a key supplier of DRAM and NAND memory for PCs and data centers, Micron’s AI-tailored high-bandwidth memory chips have sold out for 2024, prompting the company to raise prices.
These price increases have significantly improved its gross margin, which rose to 27% in Q3 from 19% in Q2, with an expected rise to 34% in Q4.
This AI-fueled demand also led to an 82% year-over-year revenue increase to $6.8 billion in Q3, with projections of $7.6 billion for Q4, marking a 90% increase from the previous year.
Analysts have responded positively, with KeyCorp, Needham & Company, JPMorgan Chase (NYSE: JPM), and Barclays all raising their price targets to as high as $180 and maintaining ‘buy’ or ‘overweight’ ratings.
Valuation metrics include a forward PE ratio of 19.65, a PS ratio of 5.68, and a PEG ratio of 1.12, indicating robust growth potential relative to earnings.
Analyst sentiment further supports the bullish outlook, with an average 12-month price of $169.08, a high forecast of $225, and a low forecast of $140.The average price target shows a 54.54% change from the last price of $109.41.
Institutional ownership stands at 84.58%, reflecting strong confidence from professional investors, giving it a ‘strong buy’ rating.
Investors looking to capitalize on the AI boom should consider these stocks, as they offer promising returns in the evolving technological landscape.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
