The AI trade is alive and well, as Nvidia’s (NASDAQ:NVDA) earnings proved on February 21. It was one of the most awaited earnings reports this earnings season. Fortunately, the chip maker, regarded as the bellwether of AI stocks, delivered solid results.
At a macro level, generative AI remains a priority spending area for companies. After all, AI is powering some of the most profound innovations in multiple sectors. Automatic video generation, molecule development, advanced driver assistance systems (ADAS), robotic process automation and battlefield intelligence are all technologies being powered by AI.
Yet, AI could be more transformative, revolutionizing life as we know it. Companies are seeing tremendous opportunities to lead this revolution and are investing heavily. They are investing in AI infrastructure and buying chips required for training and inference. Some are directing computers and talent to develop large language models and applications that leverage AI.
These investments have created a once-in-a-generation opportunity for some AI stocks. The following stocks have set themselves apart as leaders in this new era. As their recent quarterly results highlighted, their AI growth stories are secular.
Nvidia (NVDA)
On February 21, Nvidia reported another stellar quarter exceeding consensus estimates. Demand is robust, and customers worldwide need more of the chip maker’s A100 and H100 GPUs for their AI projects.
While investors were jittery heading into Q4 FY2024 results, Nvidia handily beat expectations, allaying fears. The company reported record quarterly revenues of $22.1 billion, beating analysts’ consensus estimates by $1.48 billion. The revenue number represented an impressive 265.3% year-over-year (YoY) growth rate.
The results also showed that the company generated significant operating leverage. Gross margins grew from 66.1% in Q4 fiscal year 2023 to 76.7% in Q4 FY2024. As a result, non-GAAP diluted EPS for the quarter soared 486% YoY to $5.16 compared to $0.88 in the prior-year quarter. For FY2024, non-GAAP diluted EPS was $12.96.
Management also pointed to a rosy outlook due to demand from multiple industries. Demand still exceeds supply, with supply chain constraints limiting the number of chips Nvidia can sell. Management provided a revenue outlook of $24.0 billion in Q1 FY2025, above consensus estimates of $22.03 billion.
This beat and raised quarter proves the accelerated computing and generative AI demand tailwinds are still behind Nvidia. With Blackwell, Nvidia’s next-gen architecture, likely to be announced at the GPU Technology Conference in March, the stock’s momentum will continue.
Palantir Technologies (PLTR)
After the latest earnings report, Palantir Technologies (NYSE:PLTR) received widespread praise from Wall Street. Indeed, 2023 was a transformational year where the company finally showed tremendous progress in commercial revenues. Historically, the company has relied on government customers, and the change in revenue mix is a significant positive.
The company highlighted how it is helping commercial customers implement AI use cases. Its Artificial Intelligence Platform allows companies and governments to connect large language models (LLMs) with their data and operations to improve decision-making. Companies are discovering numerous use cases by combining LLMs with Foundry through AIP.
The company has leaned into the AI moment by conducting AIP boot camps. So far, it has undertaken over 560 boot camps across 465 organizations. The classes are educating customers on AI use cases, leading to expansions with existing customers and new customer acquisitions. As a result, the company doubled the number of U.S. commercial deals, with a total contract value above $1 million in the most recent quarter.
With AIP driving growth, Q4 FY2023 revenues increased 9% sequentially and 20% YoY. Commercial revenue was a highlight, growing 32% YoY, with U.S. commercial revenue blowing past estimates and surging 70% YoY. Still, management expects U.S. commercial revenue to grow at least 40% this year and exceed $640 million.
The huge upside surprise in commercial growth had analysts praising the stock. Wedbush regards it as the Lionel Messi of AI due to the tremendous increase in commercial AI revenues, especially in the U.S. With revenues accelerating, Palantir is one of the best AI stocks to buy.
Super Micro Computer (SMCI)
Over the past year, one of the best-performing AI stocks has been Super Micro Computer (NASDAQ:SMCI) — up over 992%. The firm is seeing soaring demand for its AI plug-and-play servers.
While the stock has soared, management insists the market demand for its application-optimized servers is only growing. Bank of America (NYSE:BAC) analyst Ruplu Bhattacharya initiated coverage with a Buy rating and expects the AI server market to grow 50% annually over the next three years. He argued that Super Micro will grow at a higher rate due to its leadership and grabbing market share.
So far, the company has reported accelerating revenues. For Q2 FY2024, the company exceeded its initial revenue forecast of $2.7 to $2.9 billion, reporting sales of $3.66 billion. Compared to the previous year’s quarter, revenue was up 103.3% YoY.
The company continues to boost its AI product portfolio. On February 20, it launched the Supermicro Hyper-E server to bring data center AI processing to edge environments. Customers can now deploy large language models at the edge for real-time decision-making.
With unparalleled demand and market share gains, Super Micro is one of the best AI stocks. Management expects $14.3 billion to $14.7 billion in revenue for the fiscal year, representing at least 101% growth. Moreover, CEO Charles Liang sees potential for $25 billion in revenues over the next five years.
Considering the impressive growth, SMCI stock should be trading at a higher valuation. Instead, it is trading at forward price-to-earnings of 33. That’s why Rosenblatt and Bank of America are bullish, with price targets of $1,300 and $1,040, respectively.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
