5 Stocks to Buy to Invest in AI With Less Risk I August 5, 2024

Summary

The Morning Filter discusses key investment insights, focusing on AI's impact on the market. Susan Jinsky reports on economic forecasts, earnings from companies like Eli Lilly and Novo Nordisk, and the potential of AI in enterprise software. She highlights Microsoft's leadership in AI and its fair value estimate increase, while Intel faces challenges. Strategists Brian Kalillo and Travis Miller explore AI's role in tech and utilities, emphasizing Nvidia's dominance and the growth opportunities for data center-related utilities.

Takeaways

• 📉 The U.S. market is experiencing a sell-off following a weak job creation report and the highest unemployment rate since late 2021, indicating potential recession fears.
• 💊 Eli Lilly and Novo Nordisk, despite recent stock pullbacks, are considered overvalued but have long-term growth potential in weight loss and diabetes treatments.
• 🎥 Disney and Paramount are set to report earnings with both stocks appearing undervalued; Disney's streaming service subscriber growth and Paramount's Sky deal are points of interest.
• 📈 Several of Dave's stock picks, including Realty Income, International Flavors & Fragrances, Fortinet, and Baxter, are undervalued and have upcoming earnings reports.
• 🔝 Morningstar raised its Fair Value Estimates for Microsoft, Meta Platforms, Amazon, and Apple following their earnings reports, reflecting positive outlooks and potential undervaluation.
• 📉 Intel's Fair Value Estimate was significantly reduced by Morningstar due to a disappointing forecast, layoffs, and dividend pause, leading to a substantial stock sell-off.
• 🍎 Berkshire Hathaway's sale of half its stake in Apple may impact the stock; Morningstar forecasts double-digit iPhone revenue growth in 2025 driven by generative AI features.
• 🧠 AI, particularly generative AI, is creating new opportunities and efficiencies; however, the market is currently favoring companies providing the infrastructure, like Nvidia.
• 💡 AI's impact on enterprise software is expected to be through infused AI in existing products rather than standalone AI tools, with potential for upselling and operational efficiencies.
• 💼 The utilities sector can benefit from the growth of AI through increased demand for electricity by data centers, with specific utilities in Wisconsin, Indiana, and the Gulf Coast poised for significant growth.
• 🏭 Taiwan Semiconductor Manufacturing Company (TSMC) is highlighted as an undervalued stock with a strong market position in chip manufacturing, important for AI development.

Q & A

What is the main theme of the 'Morning Filter' episode presented by Susan Jinkins?

The main theme of the episode is to cover what investors should have on their radars this week, including new Morning Star research and a few stock ideas to research further, particularly focusing on the impact of AI on investing.

Why is this week considered quiet in terms of economic reports?

This week is considered quiet in terms of economic reports because of the lack of significant economic data releases following the release of the jobs report last week, which showed weak job creation and the highest unemployment rate since late 2021.

What was the market reaction to the jobs report released last week?

The market reaction to the jobs report was a sell-off, triggered by fears of a recession in the US due to weak job creation and the highest unemployment rate since late 2021.

Which companies are at the forefront of the weight loss drug story and how are they valued heading into earnings?

Eli Lilly and Novo Nordisk are at the forefront of the weight loss drug story. Despite recent pullbacks, they are still considered about 50% overvalued heading into earnings.

What is the stance of Morning Star's health care team on the growth potential of Eli Lilly and Novo Nordisk?

Morning Star's health care team believes that both Eli Lilly and Novo Nordisk have a long runway for growth with their stable of weight loss and diabetes treatments, but they also think the market is overenthusiastic about these stocks and sees significant price risk.

What is the expected impact of 'Inside Out' success at the box office on Disney's results according to Matt Dolan?

Matt Dolan, Morning Star's senior analyst, is curious to see how much 'Inside Out' success at the box office contributes to Disney's results, particularly in terms of subscriber adds to Disney's streaming service.

What is the significance of the fair value estimate changes for Microsoft, Meta Platforms, Amazon, and Apple after their earnings reports?

The fair value estimates for these companies were raised by Morning Star, indicating that the companies performed well and are considered undervalued or increasingly attractive, which could be a positive signal for investors.

Why did Morning Star reduce its fair value estimate for Intel by 30%?

Morning Star reduced its fair value estimate for Intel by 30% due to a disappointing forecast, announced layoffs, and the pausing of its dividend, which led to a selloff of the stock.

What is the potential impact of Berkshire Hathaway selling about half of its stake in Apple on the stock?

The news of Berkshire Hathaway selling about half of its stake in Apple could potentially impact the stock by affecting investor confidence and market perception, although the actual impact would depend on various market factors.

What are the key areas where AI is currently being utilized and how does it benefit businesses?

AI is currently being utilized in areas such as computer coding, helping programmers, and customer service, where it allows representatives to access information more quickly to better serve customers. This deployment of AI is making businesses more efficient.

How does the growth of AI and data centers present an opportunity for utilities companies?

The growth of AI and data centers presents a significant opportunity for utilities companies as data centers are huge electricity consumers. This increased demand for electricity can lead to earnings growth and more investment in infrastructure for utilities.

Which utilities are expected to benefit the most from the growth in data center electricity consumption?

WEC Energy Group, NYS source, and Entergy are expected to benefit the most from the growth in data center electricity consumption due to their locations being significant centers for data center development and the potential for increased demand growth.

How does the investment in AI by companies like Microsoft and Nvidia potentially impact their stock valuation?

The investment in AI by companies like Microsoft and Nvidia can potentially impact their stock valuation positively if it leads to increased revenue, improved efficiency, and a strengthened competitive position in the market.

What is the potential long-term impact of AI on various industries and why is it significant for investors to consider?

The potential long-term impact of AI on various industries includes advancements in enterprise software, drug discovery, genetics, autonomous driving, and robotics. It is significant for investors to consider because these developments could lead to new revenue streams, increased efficiency, and transformative changes in industry operations.