Retail investors join the AI craze | | AI Weekly Review

1. Retail investors join the AI craze

2. Institutions: from the valuation, AI stocks are not on the bubble

3.Salesforce AI Day Is Coming. Here's What to Expect

4.AMD wants to pick NVIDIA "AI crown"? Algorithmic chip "a good show" will be staged

5.Looking ahead to this week's AI company's earnings lineup: adobe, Oracle

A new report released by research firm Vanda Research shows that the investment frenzy around artificial intelligence (AI hype) seems to be gaining momentum, and the frenzy has begun to attract retail investors, who have been quiet for a long time and are finally chasing the hot spot in the U.S. stock market. The research firm said retail investors have helped drive an average daily inflow of $1.36 billion into the U.S. stock market over the past week.

DataTrek Research, a leading market research firm, pointed out in a report in May that the hype over AI had not yet formed a "stock market bubble" and that there was more upside for AI technology-led technology stocks and technology stocks more broadly as retail investors poured in further. Tony Pasquariello, head of hedge funds at Goldman Sachs, wrote in a report, "AI has taken off like a rocket, attracting investors of all stripes - and it's a simple theme that retail investors can easily understand.

The return of retail investors can also be seen in the key sentiment indicators, which have become more optimistic over the past week.

"The CNN Fear and Greed Index, which had been hovering in "greedy" territory for the past week, jumped to "extremely greedy" territory on Thursday, and AAII's weekly investor confidence survey showed that the index was at its highest level in nearly two years before the stock market officially peaked.

"Despite the short-sellers' warnings of a stock market bubble, we are still seeing relatively modest market dynamics, which leads us to believe that the upward trend in retail buying strength could continue in the coming weeks, supporting the overall U.S. stock market higher," Giacomo Pierantoni said.

Lori Cavlasina, chief U.S. equity strategist at Royal Bank of Canada (RBC), wrote in a research note that Nasdaq "looked highly nervous in those days, but that's not the case today.

Moreover, these P/E ratios are inherently reasonable, and analysts expect Nasdaq's earnings per share to grow at an annualized rate of nearly 18% over the next three years or so, which means the current P/E ratio is about 1.5 times the growth rate figure, according to FactSet.

In short, this "PEG ratio," which represents the ratio between the P/E ratio and the growth rate, means that investors will pay 1.5 times the ratio for each percentage point of earnings growth. Considering the S&P 500's PEG ratio is just over 2, this is not a high number.

With both earnings and stock prices rising, the PEG ratio is likely to remain stable over the next few years as more investors come in. For example, assuming the stock continues to trade at its current P/E ratio of 45 times and earnings per share are expected to be $11.84 in 2025, NVIDIA shares could end next year at slightly more than $530, or about 39% higher than the current $381.

Put that way, the current P/E ratio seems reasonable, as it is less than 1 times the 50% annual growth rate analysts are projecting for earnings per share over the next three years. This is a far cry from the real bubble of the Internet era, when unprofitable companies traded at high valuations on the back of expected sales.

However, Bank of America chief strategist Hartnett said in a report on the 8th that rising interest rates and depleted liquidity are the immediate negative risks for AI and U.S. tech bulls. "We remain bearish," he wrote.

He writes that he expects the federal funds rate to peak at 6%, while inflation below 3% would require unemployment above 4%. He believes the notion that rising earnings forecasts coincide with falling interest rates is "unsustainable.

To be sure, AI stocks may need a breather. They have already adjusted around their recent peaks and may even be down slightly in the near term, but that may be a drop in the ocean compared to the larger upward trend ahead for these stocks, and buying low may prove prescient.

Evercore ISI analyst Kirk Materne wrote in a research note Friday that he expects a focus on data cloud and trust elements at Monday's event. "Being able to feed data into [large language models] in a secure, real-time fashion without actually moving the data into the LLM itself will be instrumental in allowing large organizations to leverage Generative AI for commercial use while maintaining their governance and compliance requirements," Materne writes.

He thinks the company's data cloud could become the "secret sauce" that unifies all customer data, "making it accessible to the models to ultimately drive better business outcomes."

Materne adds that he does not think the company will unveil an AI monetization strategy on Monday, but the Evercore analyst asserts that eventually he expects both a per user price element as well as a consumption model tied to the company's data cloud service.

As the event approaches, analysts from U.S. institutions have been bullish on AMD. Harsh Kumar, an analyst at research firm Piper Sandler, also said he expects the AMD Instinct MI300 to contribute more than $200 million in revenue to AMD in the fourth quarter after its launch. Many investors are waiting for this announcement next week in anticipation of another round of confrontation between AMD and NVIDIA.

Recently, Forbes magazine also published a special article for AMD CEO, Mr. C.F. Su, saying that she is preparing for the upcoming artificial intelligence race and wants to pick up NVIDIA's "AI crown".

After Adobe launched Firefly, an artificial intelligence tool used to generate images, major banks raised their price targets: Wells Fargo raised its rating from "neutral" to "hold" and raised its price target from $420 to $525; Mizuho raised its price target from $375 to $450; Royal Bank of Canada raised its price target from $415 to $460. In addition, RBC Capital Markets issued a research report, raising its target price from $415 to $460 and maintaining its Outperform rating on the stock.

"There's more demand for AI processing than there is available capacity ... and we are expanding as fast as we can," Oracle's chairman and chief technology officer told investors on a conference call in early March. "And people are coming to us. Nvidia is often recommending us as the best cloud for AI, and this is a good time to be there."

"We expect AI to benefit Oracle, like Microsoft, both in its ability to leverage the increasing scale of its IaaS (OCI) and PaaS (database) infrastructure to host the acceleration of AI workloads," said KeyBanc Capital Markets analyst Michael Turits, noting the Nvidia partnership and its "opportunity to deploy and monetize AI across its broad scope of enterprise applications."

Turits, who lifted his price target on Oracle by $15 to $120 per share on Thursday with an 'overweight' rating, also said that "a lot of attention will likely be on understanding the demand for AI services in OCI, how it is differentiated vs. public cloud peers, and the associated capex to support AI workloads."