5 AI Giants to Watch at Attractive Prices Amid Fed's Big Rate Cut

Nalak Das
7 min read

In This Article:

On Sept. 18, in its FOMC meeting, the Fed reduced the benchmark lending rate by 50 basis points, marking the first cut of the Fed Fund rate since March 2020. Although the first rate cut was certain in September, market participants are surprised about its magnitude.

Just before the Fedā€™s decision, the CME FedWatch tool showed a 100% probability of a 25 basis-point cut and a 65% chance of a 50 basis-point reduction. Fedā€™s aggressive beginning of the low-interest rate regime has compelled a section of market researchers to raise eyebrows about the health of the U.S. economy.

Whatever the reason, we believe an aggressive rate cut will be beneficial for high-growth sectors like technology. At this stage, investors must closely watch five artificial intelligence (AI) behemoths. These are - Taiwan Semiconductor Manufacturing Co. Ltd. TSM, Super Micro Computer Inc. SMCI, Micron Technology Inc. MU, Snowflake Inc. SNOW and Western Digital Corp. WDC.

These stocks are currently trading at attractive prices and have huge price upside potential for short term. Each of these stocks currently carries either a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of todayā€™s Zacks #1 Rank (Strong Buy) stocks here.

Technology Sector to Benefit

The technology sector is recognized as being high-growth-oriented. Growth sectors are highly sensitive to the movement of the market interest rate and are inversely related. Companies in this space need a cheap source of credit for businesses. Investors derive returns from these stocksā€™ investments over a period of time.

A low market interest rate regime will reduce the discount rate thereby increasing the net present value of investment in these stocks. On the other hand, the fundamentals of the U.S. economy remain solid.

In his post-FOMC meeting statement, Fed Chairman Jerome Powell said, ā€œThe Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.ā€

More importantly, the Fedā€™s latest ā€œdot-plotā€ shows a strong possibility of another rate cut of 50-basis points by the end of 2024. The Fed has two more FOMC meetings left this year, scheduled in November and December.

5 Giant AI Stocks in Focus on Fedā€™s Big Rate Cut

These five beaten-down AI-centric stocks from their 52-week highs have excellent upside left in the short term.

Taiwan Semiconductor Manufacturing Co. Ltd.

Zacks Rank #2 Taiwan Semiconductor has become the new poster boy on the global AI frenzy. TSM is the largest manufacturer of AI-based chipsets for the worldā€™s best AI chipset developers. The company is experiencing solid demand for its advanced technologies, such as 3-nanometer (nm) and 5nm. TSMā€™s growing efforts to ramp up the production of 3nm and development of 2nm is a plus.

Recommended Stories