ARTIFICIAL INTELLIGENCE

Late-Blooming AI Stocks Attract Major Investor Interest After Market Shuns AI Leaders

Big Tech may have had an early lead, but it’s the underdogs showing that “slow and steady wins the (AI) race.” The Magnificent Seven stocks, which led the market on a manic AI-fueled rally since October, are now losing momentum. Investors are turning to smaller names, believing they might be due for a rebound.

Shifting gears: Analysts are moving away from “over-owned” AI picks like Nvidia ($NVDA), Super Micro ($SMCI), and Arm ($ARM) — and leaning into “overlooked” stocks. In the past month, the three stocks are down 10%, 15%, and 22%, respectively — but late-blooming AI stocks such as IBM ($IBM) and Innodata ($INOD) have gained 9% and 21%, respectively. This trend is driven by a search for value and bargains in these challenger stocks, which may offer lower valuations and greater upside.

• Baird’s Ted Mortonson noted, “The obvious AI stocks have doubled over the past year and are facing slower growth from here.”

• Market conditions, including slowing earnings growth among tech megacaps and high valuations, are supporting this rotation and making once-favored AI stocks like Nvidia less attractive.

Nvidia’s Reign Shows Signs of Cracking

Even with Nvidia’s strong position, many companies are challenging its market share in AI — eager to capitalize on the surging demand for computing power. Competitors range from startups like D-Matrix to established players like AMD ($AMD), which plans to release its new AI chip, the MI325X accelerator, in the fourth quarter. With the AI market potentially reaching $400B in annual sales within five years, Nvidia CEO Jensen Huang is “worried and concerned” about the organization maintaining its dominant position.

• Major tech corporations like Google ($GOOG), Microsoft ($MSFT), and Amazon ($AMZN) are crafting their own AI processors to reduce dependence on external suppliers like Nvidia.

• AMD is also boosting its AI investments, with a 115% increase in its data center revenue, positioning itself as a strong competitor to Nvidia.

The AI slow dance: Despite a 293% surge in AI investment last year, enthusiasm for the sector is waning. Skyflow’s Anshu Sharma suggests that startups like OpenAI and Anthropic may struggle to keep pace as they lack the spending power of giants like Microsoft and Google. While companies like Nvidia are seeing high revenues from AI chips, the widespread adoption of AI in various industries remains slow.

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LARGECAP RECAP

💸 Carvana’s Shares Have Risen Over 3,000% Since End of 2022, CEO Expects Another Strong Year

Does your past define your future? Carvana ($CVNA) has proven it doesn’t have to. Two years ago, the debt-ridden used car retailer was battling bankruptcy rumors that sent its stock down 99% at one point. Despite that, the company made a remarkable comeback — with $CVNA soaring over 3,000% since Dec. 2022, thanks to significant improvements in its financial health.

• Yesterday, Carvana reported second-quarter earnings, with revenue surging 11.4% from the previous quarter to $3.41B, while retail vehicle sales jumped 32.5%.

• Following this strong performance, Wells Fargo upgraded Carvana’s price target from $77 to $175 and expressed optimism about future prospects, including easing balance sheet concerns, long-term share gains, and better financials.

Carvana’s victory drive: Carvana has significantly outperformed competitor Vroom ($VRM), which has dropped 95% in the past year — even in a tough auto market where manufacturers are facing an affordability crisis. But Carvana’s secret to success involved cutting $1.1B in costs and defying expectations that the organization was going bankrupt. And the risk taken by those who bought $CVNA at rock-bottom prices has paid off. For those who didn’t invest then, the future wasn’t clear at the time, and the investment could have easily went to zero.

Markets & Economy

Trump allies target young male voters: A $20M campaign aims to sway young men through social media and podcasts, focusing on masculinity and economic opportunity. The effort, led by conservative groups, seeks to expand Trump’s base for the 2024 election. [Read]

DOT cracks down on airline family seating fees: The Department of Transportation proposes new rules requiring airlines to revoke “junk fees” for seating families with children under 13 together, potentially saving families hundreds of dollars. [Read]

Biogen beat earnings thanks to Alzheimer’s drug: Biogen ($BIIB) surpassed Q2 earnings expectations by 31%, partly due to its new Alzheimer’s drug, Leqembi. The business raised its full-year outlook, citing cost savings and strong new product performance. [Read]

Business & Wealth

Reddit blocks unpaid search engine access: Following Google’s $60M deal, Reddit now requires commercial agreements for search engines to access its content. The CEO cites data protection concerns, clamping down on web crawlers used to train Bing, Perplexity, and Anthropic. [Read]

ChatGPT unveils advanced voice capabilities: OpenAI has revealed ChatGPT’s new voice mode, featuring improved accents, multilingual support, and sound effects. The update strives to enhance natural conversations and accessibility. [Read]

Tesla’s self-driving ambitions hit roadblocks: Tesla’s ($TSLA) Full Self-Driving technology faces scrutiny after a fatal accident and an analyst’s near-crash experience. The company delayed its robotaxi launch, leading to a 10% stock drop. Musk remains hopeful despite safety concerns. [Read]

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DIGIT OF THE DAY

Bear and Bull Survey: 60.5% of Investors Are Bullish Going Into August

Our latest monthly bear and bull survey shows that 60.5% of respondents are still optimistic about the market going into August, though this is down slightly from 66% last month. The S&P 500 has risen in nine of the past 12 months as well as nine of the past 10 months — surpassing $5.5K in July. Will August end this streak? It depends. Nvidia ($NVDA), which makes up nearly a third of the S&P 500, has the power to either boost or drag down the market. But it’s not just Nvidia at play — tech companies struggling to produce results from their massive AI investments or a cooling economy could also sway the market’s direction.

• The tech-heavy Nasdaq-100 has fallen nearly 10% since Jul. 10 — driven by wild swings from Nvidia this week and a shift from Big Tech to smaller stocks, with the Russell 2000 up 6% in the same period.

• The US unemployment rate is steadily rising, restaurants and consumer goods companies are reporting weak consumer spending, and now, manufacturing is also showing signs of slowing.

Rate-cut revival: If anything can keep the rally going, it’s a rate cut… or three. After this week’s Fed meeting, where Jerome Powell mentioned a “rate cut could be on the table” for September, bond traders have priced in three rate cuts of 0.25 percentage points each in the remaining Fed meetings this year. Still, some remain cautious. Bloomberg reports that Bank of America’s Savita Subramanian believes the S&P 500 has peaked this year after a nearly 15% hike — but says “a full-fledged bear market is unlikely.”