AI stocks soared last week after OpenAI announced a partnership with Oracle (ORCL) and SoftBank that could result in up to half a trillion dollars of investment in AI infrastructure over the next four years.
The investment announced Tuesday adds to the enormous sums that tech giants have already said they’ll spend on data centers and other AI infrastructure in the coming years. Microsoft (MSFT) President Brad Smith said earlier this month that the company was “on track to invest approximately $80 billion to build out AI-enabled datacenters” in the fiscal year ending in June. Competitors Alphabet (GOOG)(GOOGL), Amazon (AMZN), and Meta Platforms (META) have forecast making investments on a similar scale.
That spending has fueled a huge rally in the stocks of companies that supply the metaphorical “picks and shovels” of artificial intelligence: the makers of semiconductors, servers, and networking equipment, as well as power generators.
Below, we look at the weekly performance of Wall Street’s favorite AI plays and dive deeper into some of the week’s top AI stocks.
Ciena
Shares of Ciena Corp. (CIEN), which sells networking hardware, software, and services to telecommunications and cloud-computing customers, soared 14% last week. Ciena is expected to benefit from the widespread adoption of artificial intelligence applications, which should increase demand for its optical networking technology.
“As Cloud and AI drive bandwidth demand across the network, we are positioned for accelerated revenue growth and market share expansion moving forward,” said CEO Gary Smith in the company’s most recent earnings report.
Bank of America analyst Tal Liani earlier this month predicted Ciena would be a key GenAI beneficiary this year. The company, he estimated, commands nearly 30% optical market share (excluding China) and nearly 50% of the 800G optical market. Liani expects 800G modules, which provide the greatest bandwidth of any available optical modules, “to become more pronounced in 2025 and beyond to support GenAI throughputs and low latency requirements.”
Liani is one of eight Wall Street analysts tracked by Visible Alpha who rate Ciena stock a “buy.” One analyst has assigned it a “Hold” rating. The average price target of $91.56 is 5% below Friday’s closing price.
Arista Networks (ANET), a competitor of Ciena in the networking space, also surged last week, rising 7.7%.
Monolithic Power Systems
Shares of Monolithic Power Systems (MPWR) jumped 8.4% last week.
The company, which designs and sells power-management semiconductors for an array of markets, has seen its data center sales balloon with growing AI demand. In the third quarter of 2024, Monolithic reported an 86% increase in AI and cloud-computing revenue. That business accounted for roughly 30% of total sales, up from 21% in the third quarter of 2023 and just 10% in 2021.
Deutsche Bank analysts earlier this month added Monolithic to their list of top picks while reiterating their buy rating and $900 price target. Monolithic, they said, should “continue to deliver solid AI-related growth” as the total addressable market expands. The stock should also benefit, they said, from a recovery in many of its other end markets, including automotive and industrial.
Ten of the 11 analysts tracked by Visible Alpha who follow Monolithic have assigned the stock a “buy” rating, while one has given it a “hold” rating. The average price target of $822.91 is 21% above the stock’s closing price on Friday.
Vistra
Shares of Vistra (VST) rode the AI excitement 11.9% higher last week.
Vistra, which owns and operates natural gas, coal, and nuclear power plants, as well as solar and energy storage assets, was the second-best performing stock in the S&P 500 last year, boosted by surging power demand at data centers. Top operators of nuclear power plants have benefited most from AI’s insatiable energy demand.
Cloud hyperscalers have sought out nuclear power as a source of carbon-free energy for data centers and AI workloads. Microsoft in September struck a deal with Vistra competitor Constellation Energy (CEG) to restart one reactor at Pennsylvania’s Three Mile Island nuclear facility to power its data centers. (Constellation Energy also soared last week, rising 9.8%.) Amazon in October signed agreements with several businesses and state utilities to support the development of small modular reactors.
All four of the Vistra analysts tracked by Visible Alpha have rated the stock a “buy.” Their average price target of $170.75 is 10.7% below Friday’s closing price.