Better-than-expected labor productivity data for the U.S. economy reported on Nov. 2 was the reason behind the huge stock market rally that day.
“Non-farm productivity, which measures hourly output per worker, increased at a 4.7% annualized rate,” Reuters reported. That was the largest surge of the metric in three years.
In fact, the power of AI can greatly reduce companies’ labor costs. One such believer is a consulting firm called Capital Economics. The firm holds that AI may increase American productivity by 1.5 percentage points in the 2030s, S&P Global reported last month.
But the huge increase in U.S. productivity last quarter suggests that the productivity gains have arrived already. And that, in turn, is great news for the companies leading the AI revolution. Essentially, more businesses are going to invest in AI to benefit from the productivity gains that technology provides.
So, let’s discuss buying three AI stocks that are poised to get a big lift from the explosive growth of AI.
Super Micro (SMCI)
Super Micro (NASDAQ:SMCI) specializes in providing servers, including those that enable AI. On Nov. 1, the company reported fiscal Q1 earnings per share of $3.43, well above analysts average estimate of $3.25. Also, its sales jumped 14.6% last quarter versus the same period a year earlier to $2.12 billion.
Most impressively, the company is predicting that its EPS will come in at $4.40 to $4.88 for the current quarter, above analysts’ average estimate of $4.11.
SMCI warned of its trouble obtaining enough chips to incorporate into its servers. But over the longer term, as chip makers boost AI chip production to keep up with demand, that problem should ease tremendously.
The forward price-earnings ratio of SMCI stock is just 13, which is extremely low, given the company’s rapid growth and strong leverage to the AI revolution.
SMCI’s combination of rapid growth and low valuation make it one of the best AI stocks to buy.
As noted in my previous column, localized AI – known as Edge AI – looks poised to proliferate because it’s “faster, cheaper, and more secure” than cloud-based AI, which is being widely utilized now.
QCOM noted that it’s “collaborating with multiple partners” on the development of many devices that will utilize its AI chips. Further, its chips enable many different types of AI to be used for a multitude of different purposes while consuming little power, QCOM reported.
Given its high leverage to Edge AI, the forward price-earnings ratio of QCOM stock is an extremely low 12.
Scientific software developer Schrodinger (NASDAQ:SDGR) uses AI to speed up and enhance the drug development process.
And, the company appears to be making good progress on multiple drugs, strongly suggesting that its technology is quite effective.
In September, one of the company’s treatment candidates, SGR-1505 was granted orphan drug status by the Food and Drug Administration (FDA). The designation suggests the drug, which may become a treatment for blood cancer, offers great potential.
Schrodinger reports SGR-1505’s Phase I clinical trial yielded good results, and stands as a potential therapy for patients with advanced B-cell malignancies, a type of blood cancer.
SDGR added that the data for another one of its drug candidates, SGR-2921, showed that it has ” strong anti-leukemic activity in preclinical models of acute myeloid leukemia”.
Moreover, Schrodinger reported strong Q3 results, with revenue jumping 15% versus the same period a year earlier to $42.6 million. Also, the company noted an increasing numbers of customers using its software tool.
On the date of publication, Larry Ramer held long positions in SMCI and SDGR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.