More than half of 2024's top-performing IT stocks connected to AI

While big players like NVIDIA Corp. and Microsoft Corp. get a lot of attention for the impact generative AI is having on their business, a wide range of technology companies are seeing an AI bump in their stock price this year.

In an S&P Global Market Intelligence analysis of information technology companies with a market capitalization of $5 billion or above, more than half of this year's top 50 performers in terms of share price gains had a connection to AI.

For now, the biggest beneficiaries of the AI wave are companies providing the technology enabling gen AI experimentation, including chips, cloud infrastructure, and data management and storage.

Nvidia is one of the best performers this year. The company's graphics processing units are a critical source of the computing power needed to train large-language models used by programs including OpenAI LLC's ChapGPT and Google LLC's Bard. Enterprises and governments alike are racing to place orders with Nvidia.

Broadcom Inc. helps large companies like Alphabet Inc. make their own AI chips; it has also outperformed.

Nvidia customers and suppliers are seeing booming demand. Micron Technology Inc., which produces high bandwidth memory chips used in Nvidia's AI semiconductors, has appreciated by a third this year.

Super Micro Computer Inc. and Dell Technologies Inc., which buy Nvidia chips and pack them into servers to sell on, are benefiting as well. While Dell is also active across other businesses like consumer tech, the servers business has been a rare bright spot.

Super Micro is the top-performing IT stock in 2024, and analysts are predicting further growth for the company and the stock. "SMCI is well positioned to benefit from growing adoption of generative AI, which requires significant increases in data center storage and computing power," CFRA analyst Shreya Gheewala said in a March 24 research note. "We see strong prospects for new partnerships and design wins, particularly in the enterprise market." Gheewala has a buy rating on the stock.

Some semiconductor equipment providers involved in advanced chip production are seeing stronger demand for their services. Applied Materials Inc., a company providing packaging solutions for high-bandwidth memory chips crucial for AI workloads, expects revenues from this line of business to quadruple in 2024.

Lam Research Corp. said on its latest earnings call that shipments of its high-bandwidth memory-related DRAM etching solutions are expected to triple in 2024.

Meanwhile, some companies have claimed strong demand for their AI products, but that demand has yet to translate into growing revenue and profits. This is true for laser-maker Coherent Corp. The company reported a net loss for the past three quarters and a year-over-year decline in revenue in its most recent quarter ended Dec. 31, 2023. Still, Coherent CEO Chuck Mattera said a highlight of the quarter was "ongoing AI-driven strength in the datacom vertical of our communications market."

The chipmaking industry has been struggling with clearing excess inventory, but those with some products that can be used in the production of AI chips have weathered the downturn.

Chipmakers that have yet to establish a foothold in the AI market have not performed as well. Texas Instruments Inc. produces no chips that can be used for AI workloads. Its stock is flat year to date. Intel Corp. has announced plans for an AI chip sometime this year but is primarily known for its chips for laptops and desktops. The company has seen its stock decline this year.

Further downstream, cloud infrastructure providers such as Microsoft and Oracle Corp. have also seen strong performance resulting from AI-fueled demand. As artificial intelligence requires the manipulation of large amounts of data, AI-related demand is driving business for data storage solutions providers NetApp Inc. and Pure Storage Inc., and for data management and streaming companies like Informatica Inc. and Confluent Inc.

"We estimate the enterprise multiplier for tech spending is for every $1 spent on an Nvidia H100/H200 GPU chip there could be a $10-$12 additional spending across the software, IT services, and infrastructure tech world," said Daniel Ives, a managing director and senior equity analyst at Wedbush Securities, in a recent research note. "This in our opinion is all about the 2nd/3rd/4th derivatives of the AI Revolution playing out in the market and use cases exploding as more enterprise customers go down this route."

Less than half of the top IT performers have little or no connection to AI-related demand. Most often, these companies have increased their stock prices through operational efficiencies. Uber Technologies Inc. and Salesforce, for instance, stand out. Uber's net income more than doubled in 2023, while Salesforce's net income surged nearly 18 times in 2023 as a result of cost cuts.

Meanwhile, M&A has led to an increase in the stock prices of Juniper Networks Inc. and Altium Ltd. Juniper is being acquired by Hewlett Packard Enterprise Co., while Altium was sold to Renesas Electronics Corp.