AI stocks including chipmaker Marvell Technology (MRVL), Arista Networks (ANET) and Synopsis (SNPS), which launched AI-powered chip design tools, topped this weekend’s watchlist of five stocks close to buy points. In addition to stock MRVL, ANET and SNPS, leader in weight loss drugs Novo Nordisk (NVO) and Heico (HEI), a military and commercial aircraft contractor, rounds out the list.
ANET stock is part of the IBD 50 flagship list of top growth stocks and is also part of the current SwingTrader portfolio. SNPS is on the IBD Long-Term Leaders list, which highlights companies with solid, reliable growth that may be worth buying in the face of a setback.
For now, the powerful AI-led stock market rally remains intact, but it has just received a dose of earnings volatility, with You’re here (TSLA) and Taiwan semiconductor (TSM) both tumble after their Q2 reports. The coming week could be crucial, with the Federal Reserve set to raise its key interest rate again and big earnings reports coming from Microsoft (MSFT), parent company of Google Alphabet (Google T Metaplatforms (META).
Be sure to read IBD’s The Big Picture every day to stay in tune with the direction of the market and what it means for your trading decisions.
Marvell manufactures chips used in wireless phone networks, automobiles, industrial systems, data storage devices and data centers.
MRVL expects its AI chip business to hit $400 million in fiscal year 2024, up from $200 million in fiscal year 2023. Then, it will see AI sales double again in fiscal year 2025 to $800 million, reaching around 15% of sales. However, this strength will be partially offset by near-term weakness in corporate networks and data storage.
On July 11, KeyBanc raised its price target for MRVL shares from 70 to 80, highlighting design gains from Amazon and Google.
On Friday, MRVL stock rose 0.3% to 63.41. MRVL stock has a buy point of 67.99 after an eight-week consolidation, according to analysis by MarketSmith. This consolidation followed an explosive one-day rally of 32% as MRVL stock deviated from first-quarter earnings.
With a few more sessions, the stock MRVL could form a handle that would offer an entry point slightly lower at 66.81.
Arista sells computer network switches that speed up communications between racks of computer servers clustered in “hyperscale” data centers. In 2022, Facebook-parent Metaplatforms (META) accounted for 26% of Arista’s revenue, while Microsoft (MSFT) contributed 16%.
ANET stock jumped 23.5% in the three sessions following Nvidia’s second-quarter forecast. The demand for AI chips is seen as a precursor to the demand for more bandwidth for computer networks.
It remains to be seen how quickly the impact of AI on the networking sector will be.
At a JPMorgan technology conference on May 23, Arista CFO Ita Brennan spoke cautiously about a potential AI boost.
“We’ve deployed a few use cases for AI, but it’s relatively small. I think we see it as a good foundation for future momentum and demand, especially from some of the larger hyperscale customers.”
Investors will be excited to hear an update on the AI opportunity when ANET releases its second quarter results after the July 31 close. Wall Street expects the AI stock leader to earn $1.44 per share on sales of $1.37 billion, representing year-over-year increases of 33% and 31%, respectively.
Keep in mind that buying a stock ahead of earnings is high risk. IBD recommends using an options strategy around profits.
Also note that Microsoft (Tuesday) and Meta (Wednesday) report this coming week. Their income, advice and most importantly their spending plans will be important to key supplier Arista.
On Friday, ANET stock edged up 0.1% to 171.64, closing up 3.7% for the week, although some other top AI stocks ended in the red.
Arista has a buy point of 178.36 from an 8 week consolidation. Arista, which is not as wide as some other AI stocks, is around the same level as its previous buy point of 171.44.
In a July 13 note, KeyBanc analyst Jason Celino raised his SNPS stock price target from 467 to 500, calling AI-based electronic design automation (EDA) tools the biggest technology breakthrough for the EDA industry in 30 to 40 years.
At its annual user conference on Wednesday, Synopsys launched a suite of AI-powered solutions for designing, verifying, testing and manufacturing the most advanced digital and analog chips. Synopsys described its new Synopsys.ai suite of products as the first comprehensive set of AI-driven EDA tools.
KeyBanc’s Celino sees SNPS well positioned to further consolidate market share gains in the age of AI, producing another decade of low double-digit growth.
Wells Fargo added SNPS stock to its list of tactical ideas in the third quarter, keeping a price target of 505. It noted strong demand from China as it tries to grow its domestic chip industry amid U.S. export controls that starve its key geopolitical rival technology. Some, but not all, EDA technologies are subject to export restrictions.
SNPS stock rose 0.5% to 454 on Friday. Synopsys has a buy point of 468.03 from a seven week shallow cup basis, but it may be a few days before a handful forms.
SNPS will publish its fiscal third quarter results on August 16, but its rival Cadence Design Systems (CDNS) has results due Monday, which could affect the entire industry.
Synopsys and CDNS stocks are both long-term IBD leaders.
Novo Nordisk was featured as IBD Stock Of The Day on Thursday as shares of the leading diabetes and weight loss drug capped their 50-day moving average.
NVO stock widened above an early entry of 161.85 during Thursday’s session, then rose 0.7% to 165.66 on Friday. It is still within the range of the 50 day line as early entry. NVO stock has a buy point of 172.97 from a 13-week flat base.
In May, Novo Nordisk released results from a 50 milligram once-daily semaglutide pill. In 68 weeks, patients lost an average of 17.4% of their body weight compared to a weight loss of 1.8% for placebo recipients. Semaglutide is the chemical behind diabetes treatments from Wegovy and Novo, Ozempic and Rybelsus.
Analysts expect weight-loss drugs to account for 18% of second-quarter sales, while diabetes treatments will generate nearly 60% of sales. Novo earnings are expected on August 10. EPS is expected to rise 67.5% to $1.34 on sales growth of 46% to $8.19 billion.
Heico is the world’s largest supplier of commercial aircraft spare parts, as well as a supplier of electronic components for aviation, defense and other industries.
On June 13, BofA analyst Ronald Epstein raised his HEI stock target to 220 from 190, retaining a neutral rating. It cited at least 25% year-over-year growth for its flight support group and its electronic technologies group. He pointed to Heico’s recent largest-ever acquisition of the Wencor Group for $2.05 billion in cash and shares as positive for revenue given their complementary portfolios.
HEI stock rose 0.2% to 177.45 on Friday. Although HEI stock fell after the second quarter results, it quickly regained altitude, carving out an eight-week cup-and-handle base with a buy point of 177.91.
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