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A Bull Market May Be Coming: 2 AI Stocks That Are Screaming Buys Now

Motley Fool - Fri Nov 24, 2023

The Federal Reserve's decision to maintain the benchmark interest rate within the range of 5.25% to 5.5% was received positively by the U.S. stock market. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI, a metric to gauge inflation) rose by 3.2% for the 12 months ending in October, slower than the 3.7% increase noted for the 12 months ending in September. As inflation cools down, chances of the Federal Reserve hiking interest rates also drop.

As a result, many investors are now expecting a bull rally in the coming months. With artificial intelligence (AI) at the forefront, investors can benefit significantly from buying a few AI stocks now.

Here's why Super Micro Computer (NASDAQ: SMCI) and Symbotic(NASDAQ: SYM) can prove to be smart buys now.

Super Micro Computer

A leading provider of high-end servers and storage solutions, Super Micro Computer benefits from the increased demand for accelerated computing in AI tasks. The company caters to more than 1,000 clients across 100 countries across areas such as cloud computing, edge computing, autonomous driving, 5G networks, AI servers, and the Internet of Things.

Super Micro Computer's focus on building modular, low-cost, scalable, customizable, and energy-efficient servers and storage solutions has proved to be a key differentiator in a market full of mass-produced servers. The "building block" architecture helps Supermicro to design products faster and introduce them faster in the market.

Supermicro partnered with major chip players such as Nvidia, Advanced Micro Devices, and Intel to secure early access to cutting-edge AI chips. However, the company was exposed to GPU supply challenges in the past few quarters. CEO Charles Liang remains confident in Nvidia's capability to resolve these issues.

Furthermore, analyst Vivek Arya of BofA Global Research also points out Nvidia's plans to launch new AI chips at a faster pace. As per an updated investor presentation, the company is reducing the product cycle duration of its new AI chips from two years to one year.

As GPU supply eases out, Supermicro plans to increase production at its U.S. and Taiwan facilities (which is currently only 60% of its potential output capacity ), which will help lower costs. Coupled with production at the new lower-cost Malaysia facility, Supermicro expects to see significant improvement in profit margins in the coming months.

Supermicro specializes in offering all-in-one server solutions (including server, storage, networking, security, and management tools ), which are easy to operate and power-efficient for customers. Hence, the company is well positioned to rapidly capture the share of the AI infrastructure market estimated to be worth $309.4 billion by 2031.

Coupled with the reasonable price-to-sales ratio of 2.1, (especially when the company is expected to grow revenue by 40.4% to 54.5% ), Supermicro seems to be an attractive buy now.

2. Symbotic

A leading end-to-end warehouse and distribution center management player, Symbotic uses robotics and AI-powered technology to help warehouses operate more efficiently. The technology is protected by over 350 issued patents and helps ensure a near-perfect order fulfillment accuracy rate, high speed of transferring goods, higher storage density, and reduced inventory requirements for its customers.

Several high-profile clients in the retail, wholesale, and food and beverage industries such as Walmart, Target, C&S Wholesale Grocers, Albertsons, United Natural Foods, and Associated Food Stores already adopted Symbotic's AI technology. In fact, Walmart has entered into an agreement to retrofit the warehouse automation platform in 42 of its regional distribution centers. The company's partnership with Walmart is particularly significant in this scenario, as the latter is the largest client and has contributed about 87.3% of Symbotic's revenue in the first three quarters of fiscal 2023.

Symbotic also partnered with SoftBank to establish GreenBox joint venture, targeting the warehouse-as-a-service market (estimated to be worth $500 billion annually). As per the deal, GreenBox committed to order Symbotic's systems worth at least $7.5 billion for six years starting in fiscal 2024. The deal also added $11 billion in incremental order backlog, bringing the company's total order backlog to $23 billion at the end of the fiscal third quarter (ending June 24, 2023).

Symbotic is also demonstrating impressive financial strength. In the third quarter, the company's revenue grew by 77% year over year to $312 million. While a major chunk of the company's revenue stemmed from system sales, recurring revenue also rose as more systems shifted to the production stage. Symbotic also expects gradual gross margin expansion and a future boost to profitability, as recurring revenue forms a bigger part of its revenue mix.

Symbotic is also trading at a price-to-sales ratio of 2.2 -- a very reasonable valuation for a company expected to grow revenue year over year by 84% in fiscal 2023 (ending Sept. 30) and 56% in fiscal 2024.

There is every reason to believe that Symbotic can prove to be an attractive pick for retail investors in the coming years.

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Manali Bhade has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Target, and Walmart. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.

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