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These 2 AI Stocks Are Getting a Nice Bump Higher Tuesday

Motley Fool - Tue Oct 10, 2023

Stock market participants have been pleased to see major market benchmarks rebound over the past few days. Coming into Tuesday morning's trading session, though, it seemed as though investors weren't entirely clear whether the upward move would maintain its momentum. Stock index futures were mixed with only minor changes, and that seemed to indicate uncertainty about whether an economy that has been stronger than many had expected would be able to hold up against new geopolitical pressures.

Many investors are paying close attention to artificial intelligence (AI) stocks right now, and the prospects for AI remain favorable in many people's eyes. A couple of AI hopefuls saw their share prices move higher early Tuesday. Below, you'll learn more about why shareholders are happier with the prospects for Coherent (NYSE: COHR) and Unity Software (NYSE: U).

Coherent gets a big investment

Shares of Coherent were up more than 10% in premarket trading on Tuesday morning. The maker of optical communications and silicon carbide semiconductor products gave investors some much-anticipated news, and what Coherent said generally resonated favorably with shareholders and met their expectations.

Coherent had previously announced that it would conduct a strategic review of its silicon carbide business. The semiconductor company has now completed that review, and it has come to the conclusion that it will operate the silicon carbide unit as an independent subsidiary, separate from the rest of its business.

In addition, Coherent said that Japanese companies Denso and Mitsubishi Electric will invest a total of $1 billion in the silicon carbide unit. In exchange for their respective $500 million investments, Denso and Mitsubishi will each receive 12.5% interests in the unit, valuing it at $4 billion. Coherent will continue to own the remaining 75%. As part of the deal, Denso and Mitsubishi will also enter into long-term supply agreements with Coherent's new subsidiary to ensure ongoing access to silicon carbide substrates and epitaxial wafers.

Coherent has gotten a lot of attention because its optical transceivers play a key role in networking for AI-based data centers. By setting the stage for what could eventually be a potential spinoff of the silicon carbide unit, Coherent might eventually become an even purer play on the optical components and lasers that could become key components in the AI strategies of many industrial and manufacturing businesses.

Unity makes a change

Shares of Unity Software rose 5% early Tuesday. The video game content creation platform has been the subject of controversy lately, and Unity took assertive action to try to get itself back on track.

Unity announced late Monday that CEO John Riccitiello would retire effective immediately. Jim Whitehurst will become interim CEO in Riccitiello's place, coming to Unity after a career that included work at IBM and Red Hat.

The move in the executive suite comes after Unity's failed attempt to charge video game developers a fee based on the number of user installations for their games. Developers who had previously embraced Unity's platform were understandably upset, and their uproar led to Unity having to step back from its monetization plan.

Apparently, though, Unity believed that it needed to take more aggressive action to assure its key platform users that it fully understood the potential damage the incident had done to its reputation. Shareholders appear to see the move as positive, as it could potentially put attention back on the platform's use in furthering AI-based development. Yet the stock still remains well below its levels from before the proposed fee increase.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Unity Software. The Motley Fool recommends Coherent and International Business Machines. The Motley Fool has a disclosure policy.

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