Nvidia Inc (NVDA) and Meta Platforms Inc (META), two leading players in the field of artificial intelligence (AI), have emerged as the top performers in the S&P 500 so far this year. These companies, often referred to as the “Magnificent 7” club, were also among the best performers in 2023, with Nvidia leading the pack with a gain of 239%.
The surge in the stock prices of these companies is largely driven by the anticipation that AI will become a significant revenue stream in the future, despite not yet making a substantial impact on their earnings. However, some analysts at Bank of America have expressed concerns that these AI expectations may be overplayed and could lead to disappointment, referring to it as an AI “baby bubble”.
While Nvidia and Meta are dominating the AI landscape, there are other stocks outside the Magnificent 7 that are also performing well in the S&P 500. These stocks offer investors an opportunity to invest in AI at relatively lower valuations.
One area where AI is expected to have a significant impact is cybersecurity. As cyber threats become more sophisticated, companies safeguarding corporate networks and data are turning to AI models to enhance their security measures. Palo Alto Networks (PANW) is a prime example of a company that recognizes the importance of AI in cybersecurity. Palo Alto’s AI-based continuous-security platform, Cortex, evolves continuously to help the security operations center combat the most advanced threats. The stock has gained 28% so far in 2024, following a 111% gain in 2023.
Another company capitalizing on AI in the cybersecurity space is Fortinet (FTNT). Fortinet utilizes machine learning and AI technologies to provide top-rated protection and threat intelligence. Despite experiencing a sharp drop in August 2023, the stock has gained 20% in 2024, following a 20% gain in 2023. The company’s recent earnings report exceeded market expectations, leading analysts to raise their price targets.
Juniper Networks (JNPR) is another company at the forefront of AI and cloud networking. The company’s network infrastructures are optimized for the connectivity, data volume, and speed requirements of mission-critical AI workloads. Juniper’s shares have gained 26% year-to-date, following a 6% loss in 2023. The stock witnessed a significant surge in January 2024 after reports of Hewlett Packard Enterprise’s potential acquisition.
Arista Networks (ANET) has also made significant strides in AI networking systems. The company’s open and interoperable solutions, along with a focus on operational efficiency and automation, contribute to lower operational costs for AI networking deployments. Arista’s shares have gained 20% in 2024, following a 94% rise in 2023. The company is expected to announce its fourth-quarter earnings soon.
These stocks outside the Magnificent 7 highlight the growing importance of AI across various sectors. While Nvidia and Meta lead the AI revolution, other companies are also capitalizing on AI technologies to drive growth and innovation. Investors looking to tap into the potential of AI can explore these stocks that offer exposure to the AI industry at relatively lower valuations.
