Why the time is running out for the bears again! And which AI stocks to buy!

The bears put so much hope into Nvidia, letting investors down and JP repeating its pain talk. Instead, NVDA crushed earnings expectations and raised guidance. And given the macroeconomic backdrop, JP was as much in an aloha state of mind as a central banker can be.

The result: Moves up and down and a week in the green for the NASDAQ and the NASDAQ 100.

And now?

We think that time is running out for the bears. A seasonally weaker period continues for about a month. The current consolidation period, which started on 19th July, has been going on for about six weeks - precisely the period the last consolidation period stretched in Feb and March. The upward channel has yet to be broken. Yields (2-year, 10-year) have not materially breached their former highs, and inflation is continuing its moderation path.

We see the earnings recession in important hyper-growth areas to be over and profits starting to rise into 2024. Snowflake was the first cloud consumption company that reported quarterly results that included the month of July, and the tone was positive, a bit upbeat even (The CEO is Dutch and not from Italy, it was upbeat 😀).

What about AI?

It has become apparent that while the first stage of the AI craze is not a fad, there are only a few winners with tangible top-line results.

Semis: Nvidia wants all the cake and leaves no crumbs to AMD and Marvell. For now, they will succeed. Our call: Buy NVDA, do not trade it. Keep for the long run, and have faith in the CEO!

The rest: While all companies invest heavily in AI, most lack a business model to profit from it. This will slowly emerge starting in 2024.

AI winners: There are a few under-the-radar winners worth buying a dip:
(1) Vertiv Holdings - VRT is engaged in designing, manufacturing, and servicing critical digital infrastructure technology for data centers, communication networks, and commercial/industrial environments. VRT’s offerings include power management and thermal management products, so their profits are skyrocketing alongside the build-up (densification) of the data center infrastructure. We have been long for some time (New ATH on Friday)
(2) Super Micro Computers - SMCI provides accelerated compute platforms - application-optimized server and storage systems for various markets, including enterprise data centers, cloud computing, artificial intelligence AI, 5G, and edge computing. Share prices increased from the low 90s to +350 USD from April to July 2023, only to crater back to a low of around 240 USD this week. We bought the dip at these levels.
(3) Arista Networks - ANET is a cloud networking solution supplier that uses software to address the needs of Internet companies, cloud service providers, and enterprises. We are waiting to buy on a meaningful dip.

Next post

Post 9 will cover our view of when the next bull leg will start.

We recommend post 6, post7 and post 5 for an in-depth view of our market analysis.