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Got $1,000? These 2 Artificial Intelligence (AI) Stocks Are Screaming Buys Right Now

Motley Fool - Fri Nov 10, 2023

Artificial intelligence (AI) is one of the hottest stock market themes of 2023, as the growing prominence of this technology is driving tangible gains for many companies.

Nvidia(NASDAQ: NVDA), Advanced Micro Devices, and Palantir Technologies are some of the key beneficiaries of AI adoption, which is reflected in the impressive surge these stocks have enjoyed this year. As a result, all three stocks trade at expensive multiples. While Nvidia sports a price-to-sales ratio of 35, AMD and Palantir are trading at 8 and 20 times sales, respectively.

At the same time, there are a few AI stocks that can be bought at attractive valuations right now. Assuming you have $1,000 in investible cash right now (which means that you don't have any high-interest debt, have enough savings for a rainy day, and have paid off your monthly bills), buying shares of Super Micro Computer(NASDAQ: SMCI) and Micron Technology(NASDAQ: MU) could turn out to be a smart move right now.

Let's look at the reasons why these two AI stocks are screaming buys at the moment.

1. Super Micro Computer

A $1,000 investment made in Super Micro Computer at the end of last year would be worth more than $3,099 right now.

SMCI Chart

SMCI data by YCharts

Despite that 210% jump in the stock price, Super Micro stock still trades on the cheap at less than 2 times sales despite this terrific surge. The trailing price-to-earnings ratio stands at 23, while the forward P/S multiple of 6 suggests that buying the stock is a no-brainer right now considering the solid pace at which it is growing.

The demand for Super Micro's servers has simply taken off thanks to AI adoption. The company forecasts revenue of $10 billion to $11 billion in fiscal 2024, which is an upgrade over its earlier expectation of $9.5 billion to $10.5 billion. The midpoint of Super Micro's latest guidance means that its revenue could increase nearly 48% year over year, outperforming the company's fiscal 2023 revenue jump of 37%.

However, there is a good chance that Super Micro could clock faster growth. According to CEO Charles Liang, the full-year forecast "should be a conservative number." That's because Super Micro's "backorders continue to expand faster than our forecast," according to Liang. This explains why Super Micro is working to increase capacity from 4,000 server racks a month at present to 5,000 racks a month "very soon."

However, Super Micro may need to further enhance its capacity. That's because Super Micro's server racks are being used for deploying Nvidia's H100 graphics processing unit (GPU), which is in huge demand thanks to its AI capabilities. British daily newspaper Financial Times reports that Nvidia is looking to triple its output of H100 GPUs next year. This massive jump means the need for Super Micro's server solutions should also increase.

As a result, the company should be able to sustain its impressive growth in the future as well. Super Micro management pointed out on the latest earnings call that it expects the "$20 billion annual revenue target to be just a couple of years away." Assuming that the company does hit that target and maintains its current sales multiple of almost 2 at that time, its market cap could increase to $40 billion. That would be nearly triple its current market cap.

So Super Micro seems capable of multiplying investors' money at a nice pace in the long run, which is why it would be a good idea to buy this AI stock before it soars further.

2. Micron Technology

Memory specialist Micron Technology has also turned out to be a profitable investment in 2023. Investors who bought $1,000 worth of Micron stock at the end of 2022 have seen their investments grow to $1,457, which may seem a bit surprising at first given that the downturn in the memory market has weighed heavily on the company's financial performance in recent quarters.

MU Chart

MU data by YCharts

However, Micron is on the cusp of a turnaround, and AI is going to play a central role in that because of the growing need for high-bandwidth memory (HBM) that's deployed in AI servers. Micron management said on the company's September earnings conference call that its third-generation (HBM) "is currently in qualification for Nvidia compute products, which will drive HBM3E-powered AI solutions."

The company expects "to begin the production ramp of HBM3E in early calendar 2024 and to achieve meaningful revenues in fiscal 2024." That's not surprising, as Nvidia has been packing more HBM into its AI chip platforms to enable faster transfer of data between the memory and the processor. Nvidia points out that "generative AI is memory and compute-intensive," which explains the need for more memory in AI chip platforms.

That's why Nvidia's GH200 AI chip is equipped with 141GB (gigabyte) of HBM3e memory, providing three times the bandwidth of the previous-generation A100 processor. The increase in the deployment of HBM and the potential bump in the production of Nvidia's AI chips in 2024 suggest why analysts anticipate a big acceleration at Micron this year.

The company's revenue was down by half in fiscal 2023 to $15.5 billion. The following chart indicates just how fast Micron is set to grow in the current fiscal year and beyond.

MU Revenue Estimates for Next Fiscal Year Chart

MU Revenue Estimates for Next Fiscal Year data by YCharts

Micron currently trades at 5 times sales, which is higher than its five-year average sales multiple of 2.8. The memory specialist can justify this valuation by delivering the impressive growth that Wall Street anticipates. Assuming Micron's top line does jump to $33 billion in fiscal 2026, as the chart above indicates, its market cap could increase to $165 billion at a price-to-sales ratio of 5.

That would be more than double its current market cap, which is why investors looking to buy a growth stock should consider putting $1,000 into Micron before it flies higher.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Palantir Technologies. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.

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