Everyone knows that AI stocks have been the big momentum trade in the first half of 2023. The question is, can it remain the momentum trade in the second half of the year?
Bulls are hopeful that that remains the case, as stocks like Nvidia (NASDAQ:NVDA) have helped power the entire space higher. It lit a spark in the AI industry, igniting many names higher and doling out huge profits to investors.
However, with Nvidia stock now sporting a market capitalization of $1 trillion, it’s also given a notable boost to the Nasdaq and other market indices.
On the flip side, what comes after a big rally is the risk of a big decline. While bulls are busy looking for the next move higher — and many AI stocks look ready to make that move — the concern is that the immense rallies we’ve already seen will fizzle out and leave these stocks vulnerable to a large correction.
In that scenario, there are names investors will want on their buy list when it comes to investing in AI stocks. Here are three of them.
Nvidia (NVDA)
Considered the king of AI right now, Nvidia continues to hold onto a bulk of its gains. The stock hit its high about three weeks ago and is currently down less than 4% from that mark. For the year, shares are up 200%.
While some investors may not think that a 200% gain is a huge move, many would counter that tripling inside of six months is quite impressive — especially at Nvidia’s size!
CEO Jensen Huang has referred to Nvidia hitting its “iPhone moment” now that we’re on the cusp of the AI revolution. Here’s the reality: Many companies will dominate their industry with AI. However, powering those AI applications will be firms like Nvidia.
In that sense, Nvidia benefits from any and all industries making the AI move — whether it’s in the cloud, digital images, healthcare, customer service, etc. — and not just any one particular space.
There’s a reason that, despite investors already being incredibly bullish going into earnings, Nvidia was still able to blow away even the highest expectations.
Broadcom (AVGO)
Long a favorite of mine, we pounded the table on Broadcom (NASDAQ:AVGO) leading up to the stock’s surge earlier this year. Shares were trading in a tight, multi-month range before an explosive rally sent shares higher by more than 50% in just 17 trading sessions. It capped that rally with a three-day, 35.5% burst.
While the short-term gains ultimately faded, strong earnings reinforced bulls’ belief that Broadcom would become one of the top AI stocks of the future.
Before artificial intelligence was a catalyst, long-term investors made the bullish case for Broadcom based on several merits: It had a low valuation, strong free cash flow, a high dividend yield and solid growth.
Not only did the company deliver a top- and bottom-line beat with upbeat guidance but also management comments around AI sparked enthusiasm. CEO Hock Tan said that revenue related to generated AI is expected to double this year from when it began this fiscal year.
Advanced Micro Devices (AMD)
For a long time, I have considered Advanced Micro Devices (NASDAQ:AMD) and Nvidia to be the one-two punch in the chip space. Simply put, these companies’ product offerings were best-in-class, and while Nvidia garnered considerably higher profit margins, AMD has been moving in the right direction.
Over the years, CEO Lisa Su has built AMD into a powerhouse. The balance sheet, free cash flow, margins and products have all continued to improve and now, AI will be the next catalyst.
To be clear, AMD is lagging the AI developments of Nvidia and for that, shares are up “just” 76% so far this year. To some extent, the rally is simply in sympathy to Nvidia and in anticipation that AMD will soon join the race. Whereas Nvidia is already experiencing robust demand tied to AI, AMD is not yet seeing that demand (at least as of the most recent earnings report).
That said, it’s working hard on it.
The company recently noted that, “its most-advanced GPU for artificial intelligence, the MI300X, will start shipping to some customers later this year.” AMD will eventually get an AI chip on the market and as long as demand remains robust, it should see a big boost to its revenue as a result.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.