Forget FAANG: Is It Time for the AI 5?

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Wall Street has a penchant for grouping high-flying stocks. In 2017, analysts coined the term "FAANG" to describe five tech titans outpacing rivals. Six years later, Bank of America's "Magnificent Seven" captured attention as artificial intelligence emerged. But has a new vanguard now taken the lead?

According to Glen Kacher of Light Street Capital, investors should focus on what he dubs the "AI 5" - five companies harnessing AI in innovative ways. Let's take a deeper look at each pick and examine why they may drive the market in 2024.

Nvidia Leads with Cutting-Edge Hardware

Nvidia sits proudly atop the AI hardware throne. Its data center GPUs are the chips of choice for building, training, and deploying complex neural networks at massive scale. No competitor comes close to Nvidia's estimated 90% market share in this crucial segment.

The company keeps raising the bar, too. Its upcoming H200 promises twice the inference speed of the prior H100 generation while slashing power usage in half. Lower costs and faster performance will supercharge AI adoption across industries.

Customers constantly clamor for more supply due to surging demand. Nvidia remains capability-constrained as it expands fabrication capacity via partnerships. Recent quarterly sales popped a staggering 206% year-over-year to $18.1 billion on surging data center demand.

As the core enabler of AI, few firms rival Nvidia's strategic position or financial outcomes. Continued innovation should maintain this advantage and deliver shareholder rewards in 2024.

Microsoft Infuses AI Across Vast Software Empire

Whereas Nvidia dominates hardware, Microsoft focuses on monetizing AI software. Its $10 billion OpenAI acquisition brought groundbreaking generative models like ChatGPT into the Microsoft cloud.

Tools like Copilot now enhance Microsoft applications to boost user workflows, especially for professionals. Azure also provides AI services to partners and clients building intelligent systems at scale.

Microsoft is an AI leader not due to one product but its vast interconnected suite wielding AI behind the scenes. Its $68.7 billion acquisition of Activision Blizzard will further gaming AI applications as well.

With a market cap eclipsing $3 trillion, Microsoft emerges as an AI powerhouse via careful ecosystem plays rather than standalone solutions. Ongoing injects of generative prowess to core franchises bode well.

AMD Challenges Nvidia with Cutting-Edge MI300 Chip

AMD aims to loosen Nvidia's stranglehold. Its MI300 accelerated processing units (APUs) entered the fray in late 2022. Early wins validating the strategy emerged.

For instance, the Department of Energy's Lawrence Livermore Lab chose MI300s for its record-breaking 2-exaflop El Capitan supercomputer. Other AI juggernauts like Tesla also expressed interest.

Forward guidance remains bullish. As MI300 mass production ramps in 2024, AMD sits well to increase data center market share. Successful incursions could pressure Nvidia margins over time in a battle of technological titans.

If MI300 client wins continued, AMD stock stands to benefit mightily. After climbing 28% already in early 2024, further gains may come. The firm evolves into a bigger factor moulding the AI landscape.

TSMC and Broadcom Facilitate AI Behind the Scenes

While Nvidia, AMD, and Microsoft put AI to work, TSMC and Broadcom play key supporting roles from the sidelines.

TSMC manufactures over half the world's chips, including critical GPUs from Nvidia and AMD. As AI infrastructures build out globally, semiconductor demand surges.

The company guides 2024 sales growth near 22% to $85 billion on robust forecasts across divisions like smartphones and high-performance computing.

Conglomerate Broadcom also connects diverse dots through holdings spanning ASICs and infrastructure software. Recent VMware buyout added private/public cloud management capabilities and services.

Collectively, TSMC and Broadcom underpin AI deployments at every level without direct consumer attention. But their fortunes intricately correlate to spending on all things intelligence-related in 2024.

2024 Could Belong to the AI Five

Kacher's "AI 5" unifies disparate companies converging around a transformational technology. Tailwinds include surging enterprise demand, continued hardware performance gains, and widespread workplace training initiatives.

If execution matches potential, the group may indeed outpace former highfliers and capture investor imagination anew. At minimum, an "AI play" diversifies technology exposure versus depending on a single firm or sector.

Only time will tell if Glen Kacher identified the true leaders. But with AI ascendant across industries, these five companies leverage unique assets powering the revolution. Their roles ensure coverage of a sprawling, multidisciplinary field.

For growth-seeking investors, the “AI 5” concept demands close monitoring throughout 2024. Strong results could herald a changing of the guard as AI assumes greater economic and societal influence.

Source: https://www.fool.com/investing/2024/02/04/forget-faang-magnificent-seven-time-ai-5-analyst/

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