Big Tech companies are spending huge amounts on artificial intelligence (AI) in efforts to benefit from deploying the technology down the road. According to The Financial Times, Big Tech firms increased their capital expenditures by 50% in 2024 to $100 billion in order “to build the infrastructure supporting artificial intelligence.” Among the firms benefiting from this largesse are chip makers, server makers and suppliers of infrastructure for data centers.
Moreover, large tech firms are poised to tremendously boost their spending on AI technologies again next year. Another factor making many AI stocks much more attractive is that their valuations have dropped quite significantly during the tech sector’s current correction. Finally, with a high number of companies outside of tech also beginning to deploy AI on a wide scale, their spending will also boost the top and bottom lines of many AI infrastructure firms and cloud players. Here are three AI stocks to buy on weakness in August.
Amazon (AMZN)
Amazon’s (NASDAQ:AMZN) cloud unit, AWS, is selling software tools used by companies to implement and carry out AI. The division’s revenue jumped 19% last quarter versus the same period a year earlier. The increase was meaningfully above analysts’ average estimate of a 17.6% gain. Further, the unit’s operating income came in at $9.3 billion, versus $5,4 billion in Q2 of 2023.
Also encouragingly, CEO Andy Jassy reported that the conglomerate is “seeing significant demand” for the AI training chips that it has developed, while “tens of thousands of companies” are using Amazon Bedrock. The latter software provides a framework companies can use to build AI systems relatively quickly and easily.
Also making me bullish on Amazon stock is the fact that Jassy has not sold any of its shares since July 11. He had unloaded billions of dollars of the company’s shares steadily from July 2 to July 11, but it appears he’s not interested in selling units of the name when it’s trading below $200.
In light of these points, I view Amazon as one of the best AI stocks to buy on weakness in August.
Micron (MU)
Micron (NASDAQ:MU), which develops computer memory products, reported last month that its top line had soared 81.6% last quarter versus the same period a year earlier to $6.81 billion, while its operating cash flow had jumped to $2.48 billion compared with $1.22 billion in Q2 of 2023.
Citing “robust AI demand and strong execution” as the key reasons for the firm’s very strong performance, CEO Sanjay Mehrotra noted that the company was gaining market share “in high-margin products like High Bandwidth Memory.”
In the wake of the tech firm’s results, Keybanc raised its price target on the shares to $165, nearly double the name’s current price. Meanwhile, analysts, on average, expect the company’s earnings per share to soar to $8.74 next year versus $1.11 this year.
Moreover, despite the company’s very rapid growth, the shares are changing hands at an almost absurdly low forward price-to-earnings ratio of 10 times.
Given the combination of Micron’s rapid growth and low valuation, along with its high leverage to AI, it’s one of the best AI stocks to buy on weakness in August.
Vertiv Holdings (VRT)
Vertiv Holdings (NYSE:VRT) develops and markets various infrastructure products used by data centers, including “power management products, switchgear…products, [and] thermal management products.” Most AI is being created and implemented by data centers at this point. As a result, the total footprint of data centers is expanding quite rapidly.
Consequently, it’s not surprising that Vertiv reported great Q2 financial results on July 24, as its orders, excluding acquisitions, soared 57% versus the same period a year earlier, while its operating profit advanced 63% year-over-year to $336 million.
“We continue to see increased scaling of AI deployment and Vertiv has the capacity in place to seize this pivotal moment while continuing to invest in capacity for the future,” said CEO Giordano Albertazzi in a statement.
Given the company’s strong growth and high leverage to AI, its forward P/E ratio of 30 times is quite attractive.
On the date of publication, Larry Ramer held long positions in AMZN and MU. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a long position in AMZN.