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We've been closely monitoring Palantir stock in anticipation of the upcoming earnings report. I thought we could also discuss the other popular AI stocks in our portfolio today. Before we do that, please participate in the poll and share your thoughts on Palantir or today’s episode in the comment section below.

For this episode, we will be discussing the top four AI stocks that are expected to maintain strong growth due to current demand. Please note that I'm not providing any financial advice. I'm simply sharing my assessments and the reasons behind them.

Just a quick reminder: all investments carry risk, so please do your research, especially if you're considering investing today.

To all our valued readers, we are giving our TOP HOT AI Stock list from our portfolio. Go ahead and grab it here 👇

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The technology adoption life cycle typically begins with a foundation of semiconductor design and manufacturing. Over the past year, the stock performance of NVIDIA, AMD, and Intel has been reflective of this trend. The next layer for expansion comes from infrastructure, leveraging these semiconductors for broader usage at the enterprise and commercial levels.

This leads to the third tier, which happens to be the software applications that bring AI models and tools to life for a broader audience. This serves to illustrate the timing of technology and why we will primarily focus on the first and second tiers of opportunities today.

The first company on my list is ARM Holdings ($ARM), a British semiconductor and software design company. Its primary business is designing CPUs that implement the ARM architecture. ARM stands for Advanced RISC Machines and competes directly with the x86 architecture used in most Intel and AMD processors. However, this landscape is rapidly changing due to the release of Microsoft's Copilot PCs, which are AI-enabled using chipsets based on the Arm architecture.

Sadly, none of the AMD or Intel processors met the neural processing requirement of hitting 40 trillion operations per second. But the arm-based CPU us well, it did.

Intel and AMD are only around 10 to 12 trillion operations per second, with their best chips today. And that's great news for Arm because they make their money from the royalties from the number of arm-based chips sold. I guarantee many companies will want to compete with Microsoft's Copilot A I computers, and Arm is the only chip on the block.

This is telling because Apple finally entered the AI race. A couple of months back, they announced that all their hardware moving forward will have Apple Intelligence. Clearly, it's a little bit of a play on AI, which is a new suite of AI features for their iPhone, their Mac, and all other Apple devices.

Apple Intelligence requires on-device processing with a huge emphasis on privacy. But once again, all of this new hardware is running on arm-based processors that Apple is designing themselves, and the high-end processors don't come cheap for both production and the royalties to arm. And, of course, we're all hearing how AI is driving up GPU purchases for cloud-based companies like Amazon and Google, where Amazon's Aws has custom-designed its server processors with arm with a recent announcement.

AWS is working on its in-house chip, and Google has done the same with its Axion chips. And if these large companies are buying all the server GPUs available for the next year, guess what? They're also going to need processors to accompany them.

The ARM processors have become increasingly popular due to their customizable nature for specific tasks. They are known for their low power consumption, cost-effectiveness, and high performance. These processors are utilized in various devices, including smartphones, Internet of Things, 5G modem chips, and even in Tesla vehicles for self-driving and infotainment systems. The stock's performance has been quite impressive, with a 32% increase in the past month and a 145% increase year-to-date. The company's revenue has consistently grown, and analysts predict a 22% annual growth rate for the next two years.

Another noteworthy company within the growth tiers is Qualcomm ($QCOM). Qualcomm's Snapdragon X Plus processor is the only chip that meets Microsoft's requirements to be used in its AI Copilot PCs, providing 40 trillion operations per second. This technology ties in well with ARM's.

The Orion CPU will be present in many high-end laptops and will compete against Apple's M3 chip. It's important to note that Qualcomm doesn't manufacture chips itself; it designs them using the ARM infrastructure.

For this reason, both companies will either succeed or fail together. Most of what I discussed about ARM is directly related to Qualcomm. Now, let's move on to the financials.

When we look at the stock for the trailing 12 months, it's up 76%. The three-year CAGR is 15.5%, and the five-year CAGR is a solid 24%. That means that $10,000 invested five years ago would be worth over $29,000 today.

We believe that Qualcomm is a reliable source of income. We don't foresee them expanding as rapidly as NVIDIA in the near future, but they have developed most of the chips used in our mobile devices. Additionally, with the introduction of high-end Snapdragon processors in laptops, their growth potential may be greater than expected. They are a company that takes risks with networks and is positioned within the second tier of the growth cycle for AI expansion. Qualcomm designs and sells cloud networking solutions for large data centers and routing environments.

Large data centers such as Amazon, Google, and Microsoft are updating their hardware to handle the significant demand for resources created by AI. One major focus is on improving networking hardware, which plays a crucial role in managing the immense traffic of data. Network infrastructure plays a key role in building scalable, high-performance, and low-latency networks for cloud computing and data center environments. Specifically, AI-driven network infrastructure is being developed to enhance GPU interconnects. Efficient management of data traffic is vital, as it directly impacts the speed at which models can learn and provides faster responses to user inquiries.

Over the past twelve months, there has been impressive growth in performance, with a rate of over 129%. When looking at the three and five-year KPIs, the growth rates are 58% and 40%, respectively. Additionally, the income statement shows substantial revenue growth over the past eight years. This is also true for their net income. If you had invested $10,000 five years ago with Arria, it would be worth over $55,000 today. It's clear that marrying a company with strong fundamentals to an obvious path for growth is a winning combination.

Once again, you've found yourself another cash cow. We've owned Arista ($ANET) for a while now, and I'm continuing to buy more to take advantage of dollar-cost averaging. While its price may fluctuate in the short term, I believe it will be a good investment over the next 10 years.

The next company is Super Micro ($SMCI), which designs and builds high-performance, energy-efficient servers, storage systems, networking devices, and other IT infrastructure solutions.

They may sound simple because they are a direct competitor to Arista networks. For that reason, let's compare their financials for their 2023 performance. In looking at this table, Super Micro has more revenue and is growing at a faster pace year over year, at 37%.

However, Super Micro's gross margin is relatively low at 15% compared to Risk Networks' 61%. The same holds true for operating and net income, as Arista Networks boasts much higher margins.

Super Micro is benefiting from strong demand and growth, with analysts predicting a 19% upside for the year on average. In terms of performance, its trailing 12 months are the highest among its peers, at 270%.

It's worth noting that the five-year Compound Annual Growth Rate (CAGR) stands at an impressive 114%. While it may seem like it's too late to enter the market, Super Micro's business is expected to thrive for several years as it keeps pace with major companies' upgrades to its IT infrastructure and processors. If you had invested $10,000 in Super Micro five years ago, it would be worth over $448,000 today.

So, let’s quickly round up the four AI stocks that we are bullish today:

In the next few months, I will be featuring more AI companies in the second and third tiers of growth. I hope you found value in today's episode. If you feel that I deserve it, I would greatly appreciate it if you would consider subscribing if you haven't already.

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That’s it for this episode!

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The Investing Wise Academy Team

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