Wednesday, January 10th, 2024

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Just five companies, all heavily involved with AI, have boosted the major averages into bull market territory.

One of those stocks, Nvidia, was up 189% in the first half alone.

Nvidia is a legendary home run, but our Weiss Ratings AI specialist, Jon Markman, has homed in on one high-rated AI stock in particular.

It’s our pick for The #1 AI Stock of 2024 and Beyond

Hello Stock Traders!

While financial news feeds buzz with fleeting narratives of elections, central bank pronouncements, and economic ebbs and flows, we at ImAStockTrader.com believe true wealth creation stems from something far more enduring – innovation. 

It’s the quiet engine that drives productivity, lifts GDP, and ultimately improves our lives. Companies that develop innovative products and services, making us more efficient, healthier, or simply happier, find lasting demand, regardless of the political wind or the direction of interest rates.

Over the years of navigating market cycles, through recessions, exuberance, and everything in between, we have witnessed two crucial truths:

Innovation has an uncanny knack for thriving through economic turbulence. Remember personal computers blossoming in the early 90s recession? Or digital advertising and smartphones powering through the 2008 crisis? These technologies, early in their adoption curves, found fertile ground even during tough times.

Strong competitive advantages, like a moat around a castle, often lead to expanded market share, especially when the going gets tough. Think dominant companies in mature industries weathering downturns with their established customer base and brand loyalty.

So, where do we see this resilience playing out today? The answer lies in a transformative force reshaping our world: Artificial Intelligence (AI). Bill Gates himself called it “as important as the PC, as the internet.” This mega-trend will impact businesses and investing for years to come.

Our recent field research with a multi-billion dollar cloud service consultant underscores this. AI solutions, fueled by the need for digital transformation, are no longer “nice-to-haves” but “must-haves” for businesses seeking cost savings and a competitive edge. This adoption will continue, unfazed by the economic weather.

But how do we, as investors, capitalize on this AI wave? We believe in focusing on the companies powering the AI infrastructure. Think of them as the unsung heroes behind the scenes, enabling this technological revolution.

Semiconductors, the brains of the operation, are a crucial piece of the puzzle. Consider AI programs like ChatGPT – their intelligence is directly linked to the amount of training they receive. This training doubles roughly every four months, far exceeding Moore’s Law’s two-year transistor doubling prediction. The sheer processing power needed for such rapid advancement translates to soaring demand for cutting-edge chips. Companies like Nvidia (NVDA), Marvell Technology (MRVL), and Advanced Micro Devices (AMD) are leading the charge with innovative technology, making them compelling investment prospects.

But raw power isn’t enough. AI’s computational demands generate immense heat, challenging data centers with cooling issues. Companies like Vertiv Holdings (VRT) are stepping up to the plate, tackling this problem while potentially improving cost and energy efficiency. As data center needs multiply, power management and electrical services companies like Eaton (ETN) are also poised to benefit, ensuring the smooth flow of the digital lifeblood.

Data, the fuel driving AI’s rocket ship, is another crucial investment angle. Imagine AI as a powerful engine, but without fuel, it’s merely a gleaming hunk of metal. In today’s data-driven world, companies like MongoDB (MDB) are helping businesses organize and store their unstructured data, turning it into readily available fuel for AI programs. Gartner estimates the data management market to grow by a staggering 17% annually between 2023 and 2027, making this a fertile ground for investors.

At Alger, we believe in preparing for all possibilities. Instead of chasing fleeting headlines, we focus on companies with strong potential to gain market share, regardless of the economic climate. Whether it’s chipmakers enabling groundbreaking AI applications, companies tackling data center challenges, or those ensuring the smooth flow of information, these are the companies shaping the future. By investing in their innovation, we can tune out the noise of the financial news cycle and focus on long-term wealth creation.

–James

Up next: While the “Goldilocks” narrative of a soft landing sways the stock market, savvy investors tune into history’s whispers and economic data’s beat to prepare for the melody’s inevitable shift.

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In today’s information-overloaded world, narratives rule the markets. They whisper through social media feeds, echo in analyst reports, and dance across headlines, shaping investor sentiment with each fleeting soundbite. While many factors still influence the market’s heartbeat – data, earnings, global affairs – deciphering the dominant narrative has become a crucial skill for savvy investors.

The current thing playing? The alluring rhythm of “Goldilocks,” a soft-landing scenario where the economy simmers at just the right temperature, neither too hot nor too cold. It’s a tale spun by the Fed itself, with Chairman Powell subtly planting the seeds of a just-right slowdown in recent pronouncements.

Imagine, if you will, the three bears’ porridge bowls. Papa’s scalds, Mama’s chills, and Baby Bear’s? Just right. That’s the dream – an economic porridge neither sizzling with inflation nor icy with recession, but perfectly digestible for asset markets.

This narrative, spun into existence by the Fed, has fueled a bull market since November. Stocks danced to the tune of “no more rate hikes,” bonds swayed to the promise of future cuts. The S&P 500 climbed 12%, long-term treasuries serenaded investors with a 15% rise. But how long will this melody play?

As the saying goes, the market can stay irrational “longer than you can stay solvent.” Whether Goldilocks truly reigns supreme or fades into a forgotten fairytale remains to be seen.

Digging Deeper into the Goldilocks Narrative:

To assess how this narrative translates into investment opportunities, let’s peek behind the curtain and examine where the wind has blown since November’s debut performance.

Sector Spotlight: Technology, communications, and consumer discretionary, the 2023 darlings, still waltz, but not in the lead. Transportation and real estate pirouette to the top, likely drawn by the promise of a smooth economic road ahead. Utilities and staples, however, tap their toes reservedly, their lower betas less enthralled by the risk-on environment.

Factor Fiesta: Small and mid-caps steal the show from their large-cap counterparts, a stark contrast to the year’s earlier act. Equal-weighted indexes take center stage, showcasing a preference for broader market exposure in this bullish climate. Gold, surprisingly, sits on the sidelines, perhaps reflecting doubts about the Fed’s dovish promises amidst persistent government spending.

A Look Back, a Glance Ahead:

Market history is a symphony of booms and busts, each orchestrated by a powerful narrative. The Goldilocks tale, for now, holds sway. But history whispers a cautionary note: soft landings are rare birds, often glimpsed only in hindsight.

Janet Yellen’s January refrain adds another layer to the melody: “a soft landing is possible.” Possible, yes, but probable? Michael Kantrowitz’s data throws cold water on the dream, quantifying the elusive nature of these just-right scenarios.

Government spending, however, provides a potential support act for the Goldilocks play. Election year promises tend to boost budgets, keeping the economic pot simmering for now. Nevertheless, employment data holds the key to the narrative’s true longevity. Should unemployment move upwards, a recessionary tobe might soon drown out the bullish mood.

Investing in this dynamic scene requires agility and a discerning ear. Listen carefully to the market’s evolving narrative, assess its staying power, and adjust your portfolio accordingly. Remember, while Goldilocks might be the current hit, the market’s playlist is ever-changing, demanding careful attention to the next melodic shift.

Disclaimer:

Trading foreign exchange, stocks, options, or futures on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade, you should carefully consider your objectives, financial situation, needs and level of experience.

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