AI Stocks Plunge: Palantir, Super Micro, Broadcom - Still Lucrative?

Published Date: 6/08/2024

Nvidia's design flaw, Japan's rate hike, and the impact on AI stocks like Palantir Technologies, Super Micro Computer, and Broadcom.

Artificial intelligence (AI) has been all the rage since early last year, helping to ignite and sustain an ongoing market rally. But on Monday, bad news for Nvidia and a rate hike on the other side of the world sparked a global sell-off.

Nvidia is widely regarded as the flag-bearer for AI, so when Nvidia sneezes, other AI stocks catch a cold. And that's exactly what happened, with Palantir Technologies tumbling 2.7%, Super Micro Computer slumping 1.8%, and Broadcom slipping 1.7% as of 3 41 p.m. ET.

So, what triggered this sudden downturn? Well, 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. This stunning one-two punch was further compounded by an interest rate hike in Japan, which had unintended consequences for global markets.

Investors had been taking advantage of Japan's historically low interest rates to underpin a carry trade, which involved borrowing the Japanese yen and using the funds to invest in the stock market - including AI-related stocks. However, the rate hike boosted the value of the yen, making it more expensive to buy, and sparking a stock market sell-off that spread around the globe.

But what does this mean for investors in Palantir Technologies, Super Micro Computer, and Broadcom? In a word  nothing. 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, with estimates suggesting a market value of between $2.6 trillion and $4.4 trillion annually. And our trio of stocks has tremendous potential to benefit from this trend.

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, our trio of stocks has seen a resulting increase in their valuations. 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.

FAQS:

Q: What triggered the downturn in AI stocks like Palantir Technologies, Super Micro Computer, and Broadcom?

A: A design flaw in Nvidia's next-generation Blackwell AI processor and an interest rate hike in Japan sparked a global sell-off.

Q: What is the expected market value of generative AI annually?

A: Estimates vary, but generative AI could have a market value of between $2.6 trillion and $4.4 trillion annually.

Q: How have Palantir Technologies, Super Micro Computer, and Broadcom benefited from the AI trend?

A: Palantir has developed successful boot camp sessions for AI solutions, Super Micro Computer provides cutting-edge servers for AI deployment, and Broadcom has seen robust growth from AI-related products.

Q: What valuation metrics suggest that Palantir, Super Micro Computer, and Broadcom are undervalued?

A: The forward price/earnings-to-growth (PEG) ratio for each stock is less than 1, indicating that they are undervalued.

Q: What opportunity do Palantir, Super Micro Computer, and Broadcom represent for investors?

A: They represent compelling opportunities for savvy long-term investors looking to benefit from the growing demand for AI solutions.

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