This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
The AI play began last year with the tech titans Nvidia, Microsoft, Alphabet, and the rest of the “Magnificent Seven.”
The promises of a transformative new technology quickly shifted markets. You know the story by now.
But outside of the big winners like Nvidia, which has seen shares rise about 400% in the last year, new companies with even gaudier gains have started to emerge.
Like Super Micro Computer (SMCI).
The company’s stock chart, as you can see, looks like a perfect hockey stick in the context of its 2023-24 rally, even with Friday’s 12% sell-off. It’s Mav and Goose in an unrestricted climb. It’s flat, flat, flat, and then it goes big. It’s the story of AI.
According to Bank of America’s newly launched coverage (Buy, with a $1,040 price objective), Super Micro’s strength is building servers from scratch, enabling customization others may not be able to, which is perfect for AI applications. An AI moonshot winner 30 years in the making.
It’s literal black box hardware technology, and investors are comfortable trusting the contents inside — the stock is up 176% in the past month and 841% in the past year. Its minor scandals of the past few years involving cozy relationships with Iran, Russia, and China do not seem to concern the market.
Right now, credible and mostly credible corporate mentions of AI are producing patterns like these as investor excitement and FOMO continue rushing to bankroll today’s forty-niners.
We’ve seen it thus far in chips (Nvidia), chip production and architecture (ARM, Super Micro), consumer-facing software (Microsoft), B2B software (Palantir), and devices (all the new phones and computers with AI chips).
In year two of the AI era, the focus is now shifting at least partly away from these titans to smaller companies that still offer exposure to the sector. Sometimes the spotlight comes from corporate guidance, an analyst note, or even when Uncle Nvidia takes a big stake, as it did this week. And when investors figure out the next potential undervalued AI play, the stock booms.
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