Nvidia (NVDA) is part of the future wave of artificial intelligence, but the recent decline in Nvidia stock has investors searching for the next AI leader, and that new generation could come in the form of AI-related companies from sectors like energy, defense, and transportation.
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“If you look back at the internet, there was an initial wave of infrastructure that led to consumer products,” Matt Caruso, president of Caruso Insights, said this week on the Investor’s Business Daily podcast, “Investing with IBD.”
Audio version of the podcast episode
He said infrastructure providers were replaced by value-added service providers in the early days of the internet, benefiting shareholders as the market moved into the 2000s. Caruso sees a similar parallel with Nvidia stock.
“I think we’re seeing the first wave,” he said. “There’s always new companies coming into the market that give us new angles to make the chips even faster, or the next phase is when we start to see the fruits of this massive (capital expenditure) effort.”
Additionally, Caruso lists Palantir, Tesla, and GE Burnova as AI stocks to watch.
Palantir’s Commitment to Customers
Caruso said Palantir stock is emerging as an attractive AI stock in the defense space, pointing to Palantir’s (PLTR) recent contract with the Department of Defense as an example of a company with a strong enough business to be selective about its customers.
Meanwhile, Palantir has already shown how to get real value out of using AI, Caruso said. “It shows you have a product that’s going to bring you value,” Caruso said. He said Palantir is another potential AI investment after the infrastructure foundation NVIDIA has built.
Palantir is a volatile stock, but it has been trending higher in recent months. After shares rose following its earnings report in early August, Palantir is currently falling, seeking support at its 21-day uptrend line. Palantir holds a best-in-class IBD Composite Rating of 99 and is ranked #1 in the Computer Software – Enterprise industry group, according to IBD Research.
Tesla uses Nvidia chips
Tesla (TSLA) is among the companies using AI infrastructure built by Nvidia. The automaker has bought thousands of chips from Nvidia for use in everything from self-driving technology to robotics. Caruso said companies like Tesla are under pressure from investors to develop products that rely on costly AI infrastructure to make money.
Tesla shares have re-surfaced above their 50-day moving average this week, consolidating to the right of a new low. Aggressive investors could use this movement, along with the stock’s recent rise above a high of 228.22, as an opportunity to enter early. The stock is ranked #3 in the Automakers industry group and has an IBD Composite Rating of 67.
Demand for Nvidia is fueling a surge in AI-related businesses
But GE Vernova (GEV) is Caruso’s surprise AI pick: The chips that powered Nvidia’s phenomenal rise last year require huge amounts of power to operate, and Caruso says GE Vernova is now a pure energy stock.
He cites the breakup of GE earlier this year into a health-care products company, an airline and, most importantly, a power company. “Most CEOs just want to run bigger companies,” he says. “They go to the trouble of splitting up companies and ruling smaller kingdoms because they genuinely believe it’s in the best interest of the stock price.”
GE Burnova broke through a 190.80 entry point on August 29. The stock is currently extending from that entry. The company’s shares made their market debut as GEV in March of this year after being split off from the larger GE Group. GEV holds an IBD Composite Rating of 78 and is ranked #2 in the IBD Energy Alternative/Other industry group.
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