This article first appeared on our U.S. website.
Artificial intelligence (AI) has been all the rage since early last year, helping to ignite and sustain an ongoing market rally. Generative AI has shown the potential to streamline time-consuming tasks, which will increase productivity and boost profits for companies that adopt this groundbreaking technology.
Nvidia (NASDAQ: NVDA) is widely regarded as the flag-bearer for AI, so when Nvidia sneezes, other AI stocks catch a cold. Furthermore, a rate hike in Japan had unintended consequences for global markets.
With that as a backdrop, several of the world’s most renowned AI companies suffered setbacks today. Palantir Technologies (NYSE: PLTR) fell 2.6%, Super Micro Computer (NASDAQ: SMCI) dropped 2.5%, and Broadcom (NASDAQ: AVGO) slipped 1.2%.
Let’s see what set those declines in motion — and what it means for the future.
A stunning one-two punch
Word broke over the weekend that Nvidia had discovered a design flaw in its next-generation Blackwell AI processor, which could set back the release date by three months, according to a report in The Information.
Nvidia’s graphics processing units have been widely acknowledged as the gold standard when it comes to training and running AI systems. Demand has been unquenchable as companies scramble to unleash AI and capture their part of the expected windfall.
Furthermore, Nvidia’s Blackwell processor is a major component of the company’s GB200 Grace Blackwell Superchip, which reportedly offers a 30X performance increase for inference and 4X for training compared to its predecessor, while reducing energy consumption by 25 times. This stunning increase in performance had customers lining up to buy these next-generation chips, so the resulting delay could cost billions.
In an unrelated development, the Bank of Japan announced an interest rate hike in a bid to tame inflation, increasing its benchmark rate from 0.10% to 0.25%. Unfortunately, the move had unintended consequences.
Investors had been taking advantage of Japan’s historically low interest rates to underpin a carry trade. This involved borrowing the Japanese yen and using the funds to invest in the stock market — in this case, many AI-related stocks.
However, the rate hike boosted the value of the yen, making it more expensive to buy. This in turn sent traders scrambling to unwind these trades and replace the borrowed yen. This sparked a stock market sell-off that spread around the globe like wildfire.
But what does this mean for AI investors?
So, what does this mean for investors in Palantir Technologies, Super Micro Computer, and Broadcom? In a word: nothing.
To be clear, it’s unnerving to see the stocks you own slump on no company-specific news. The good news is that the initial global panic that helped take down our trio of stocks by double-digit percentages is already beginning to subside as clearer heads prevail.
AI remains a once-in-a-generation opportunity. Estimates vary, but generative AI could have a market value of between $2.6 trillion and $4.4 trillion annually, according to global management consulting firm McKinsey & Company.
Furthermore, investors should consider this trio of stocks in light of each one’s AI potential:
- Palantir has developed boot camp sessions that companies can attend to create AI solutions for real-world problems — and demand has been off the charts.
- Super Micro Computer provides the cutting-edge servers that businesses need to deploy AI, and the company has been expanding its production facilities to keep up with soaring demand.
- Demand for AI-related products has also been a boon to Broadcom, driving robust growth.
After generating big gains over the past year, this group of stocks has seen a resulting increase in their valuations. Palantir, Broadcom, and Super Micro are currently selling for 72 times, 30 times, and 18 times forward earnings, so Super Micro is already relatively cheap.
However, this doesn’t take into account the expected growth trajectory resulting from strong demand for AI. When measured using the more appropriate forward price/earnings-to-growth (PEG) ratio, each sports a multiple of less than 1, the standard for an undervalued stock.
That helps explain why Palantir, Super Micro Computer, and Broadcom represent compelling opportunities for savvy long-term investors.
