With stocks in the artificial intelligence space trailing the rest of the market after Nvidia's blockbuster earnings report, it's no surprise to see three AI stocks topping the watch list this weekend. Supplier of data center equipment Arista Networks (ANET), leading technology leader for autonomous driving Mobileye (MBLY) and chip maker Monolithic Energy Systems (MPWR) all rose near the buy points last week. A drug wholesaler joins ANET, MBLY and MPWR McKesson (MCK) and smartsheet (SMAR), whose work management software facilitates workplace collaboration.
Mobileye and Smartsheet are both part of the IBD 50 flagship list of leading growth stocks. Monolithic Power is on the watch list of the IBD Long Term Leaders list.
On Thursday, Wells Fargo began reporting on MBLY stock with an Overweight rating and a price target of 50. Analyst Aaron Rakers sees Mobileye as a “platform enabler” for autonomous vehicles. SuperVision's revenue is expected to grow to $3.2 billion over the next five years, but it could also hit $7 billion in an upside scenario.
On May 9th, Porsche, part of Volkswagen, announced that it will offer automated driver assistance with SuperVision. Mobileye said in its first-quarter earnings report on April 27 that a global U.S. automaker is expected to launch SuperVision in the second half of 2023.
MBLY stock rallied over the past week, rising 10.6% to 45.14, recovering after a dip in first-quarter earnings. According to MarketSmith analysis, Mobileye has an official buy point of 48.21 after a 14-week consolidation. A move to 47.04, not necessarily considered a double basis buy point, could provide an early entry. If MBLY consolidates here next week, 46.58 – 10 cents above Friday's intraday high – could spell an earlier entry.
Like Mobileye, ANET stock has bounced back over the past few days after a first-quarter earnings sell-off. Bank of America Global Research named Arista to its “US 1 list” of top investment ideas on Wednesday. But stocks have really taken off with other AI games due to the blowout guide Nvidia (NVDA) on Wednesday evening.
Rosenblatt analyst Michael Genovese wrote in a May 2 note that the earnings sell-off reflects in part over-optimism about the timing of Arista Switching's earnings, which are being driven by cloud spending on artificial intelligence clusters. However, Rosenblatt believes revenue will increase in 2024, making consensus forecasts overly pessimistic.
Arista, whose main customers are Meta Platforms and Microsoft, was Friday's IBD stock of the day.
ANET shares rose 9.1% on Friday to 170.35 after rising 10.6% on Thursday. Arista has a buy point of 171.54 from a nine week consolidation.
Monolithic Energy Systems
Monolithic Power's chips provide power solutions for industrial, telecom infrastructure, cloud computing, automotive and consumer applications. MPWR stock, along with AI stocks Mobileye and Arista, slid on Q1 earnings and Q2 outlook as corporate data sales were weaker as customers replenish inventory or delay product launches.
However, Monolithic has gained prominence by providing graphics processing units for AI use cases. During the May 4 conference call, CFO Bernie Blegen noted Monolithic's “very leading market share position” in the GPU artificial intelligence space. Though the market is still in its early stages, he said the company is in a good position to capitalize on its next-gen GPU and “expand our position.”
MPWR shares are up 20.6% over the past week at 520.92. That leaves MPWR just below a buy point of 530.75 from a long cup and handle base. As with Arista and Mobileye, a pause would be constructive for Monolithic Power.
While AI stocks stand out as major growth drivers despite a potential recession, wholesale drug stocks are also considered recession-proof, albeit with modest growth prospects.
That thesis received a boost when McKesson recently raised its long-term growth target for its pharmaceuticals division from 4% to 5-7%. Competitor AmerisourceBergen also recently raised its guidance on solid load factors and pricing improvements.
McKesson was named IBD Stock of the Day on Wednesday.
MCK shares fell 1.9% to 387.95 on Friday. Still, MCK stock is within 3% of a 401.63 buy point from a 29-week consolidation.
Smartsheet competes with Asana and Monday.com in the work management software market. Smartsheet's focus is on helping employees automate processes to free up time for creative and collaborative work.
Analysts cite Smartsheet's size, deployment complexity, and positive cash flow as differentiators, according to Thursday's Stock Of The Day IBD feature.
Smartsheet stock surpassed its 50-day moving average on May 16 after strong quarterly results from peers Monday.com (MNDY).
SMAR shares rose 3.7% on Friday to 47.86 to close at a buy point of 49.09.
asana (ASAN), which is also under construction, reports first quarter results on June 1st. SMAR results are expected on June 7th.
Investors might want to be cautious ahead of the earnings report. A strategy around the outcome would be usage call options.
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