At the start of the 2020s, machine learning was a small industry with limited applications outside marketing departments. However, the rise of AI and faster, more efficient chips in the past two years has opened the floodgates to innovation.
Most of the biggest tech conglomerates are increasingly investing billions of dollars into research projects to stay ahead of their competitors.
However, investors are no longer interested in promising projects. The focus has shifted to projects that impact the company’s top line. So far, a few clear winners have emerged, and the three stocks below have shown great progress in the machine learning (ML) sector.
Adding them to your portfolio as part of a long-term investment strategy could lead to huge gains in the future. Below is a detailed review to help you understand why you should invest in these three stocks in the emerging machine-learning sector in July 2024.
Snowflake
Snowflake (NYSE: SNOW) is a company developing solutions for the cloud computing industry, including advanced data analytics and training machine learning algorithms. Since its initial public offering in 2021, this machine learning stock has been on an upward trajectory, peaking in late 2021 at $392.15.
Since then, the stock has pulled back to $135 per share, driven by the bear market that emerged after the initial public offering and partly due to a market correction due to overvaluation at the initial public offering. Despite this slide, the market remains optimistic about its future performance.
In its first-quarter fiscal 2025 results, Snowflake reported a 34% year-over-year revenue increase to $789.6 million. Additionally, it reported FCF of $313.5 million. SNOW has maintained positive free cash flow (FCF) for several quarters.
Snowflake forecasted revenue growth of 24% for fiscal 2025 in its first quarter results to $3.3 billion.
On July 12, SNOW stock took a hit when AT&T (NYSE:T) revealed nearly all of its customer’s call and text records had been stolen in a hack. The data was obtained by using the stolen login credentials of a Snowflake employee. Snowflake first revealed the data breach nearly seven weeks ago. However, this is likely a temporary setback.
Analysts remain optimistic about SNOW’s future. It has an average price forecast of $198.51, a 43.66% upside based on the most recent price of $135.75. The most optimistic analysts expect SNOW to hit $240, a 73.69% upside.
AeroVironment (AVAV)
AeroVironment (NASDAQ:AVAV) is a leader in the design of AI-powered UAVs and advanced weapons systems for the military. Additionally, it supplies its products to first responders and space missions.
In June 2020, it announced its participation in the high-profile Mars helicopter mission that saw an unmanned craft fly on Mars for the first time. The company has also been working with its NATO customers for the supply of UAVs used in the Ukraine conflicts.
AeroVironment announced its Q4 and full-year fiscal 2024 results on June 26. It reported a 6% year-over-year (YOY) increase in quarterly revenue. Meanwhile, full-year revenue experienced a 33% year-over-year increase to $716.7 million.
In the Q4 and FY24 results, AeroVironment forecast around 12% growth in revenue for FY25 at between $790-$820 million. It expects net income to grow to $83 million from $59.67 million in FY24.
Analysts remain upbeat about the future of this machine learning stock. They give it an average price target of $191.83, a 9.40% upside. Meanwhile, the most optimistic analyst expects the stock to rise by 39.73% from its current price of $173.25 to $245 per share.
Arista Networks (ANET)
Arista Networks (NYSE:ANET) is a go-to service provider for cloud networking services for large data centers, cloud service providers and high-performance cloud networking. Its high throughput solutions are necessary to provide the processing power needed for large machine learning workloads.
In a recent report fromArgus analyst Jim Kelleher, he noted the rise of AI has been a boon for cloud-based data networking service providers. As a result, he gives the stock a buy rating.
In its Q1 fiscal 2024 presentation, Arista highlighted some of its achievements. including market share growth in high-speed data center switching. Industry peer Cisco (NASDAQ:CSCO) saw a decline.
It reported a 16.3% year-over-year growth in Q1 2024 revenue to $1.571 billion. Non-GAAP gross margin grew to 64.2% compared to 60.3% in Q123. For the upcoming second quarter, Arista Networks expects revenue of $1.62 billion to $1.65 billion. It also guides toward a non-GAAP gross margin of around 64%.
During an investor call with analysts, Arista CEO Jayshree V. Ullal said he expects the company to grow its AI revenue to $750 million in 2025. Most of that will likely come from Ethernet switches. The company is engaged in extensive research in the space and launched a new product in June.
Analysts give the stock a hold rating. They forecast an average price target of $333.25 in the next 12 months. That implies 7.33% downside compared to its most recent price of $361.90. The most optimistic analysts forecast $425.00, an 18.19% upside. Despite the expected price correction, the forecast for this decade is optimistic as machine learning use cases by large companies expands.
On the date of publication, Joel Lim did not have (either directly or indirectly) any positions in the securities mentioned in this article. 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 did not have (either directly or indirectly) any positions in the securities mentioned in this article.
