3 more AI actions to “Buy the Dip”

Tom Yeung here with your Sunday Digest.

Last week, I wrote about “Gravity Pleasure Road,” the world’s first modern roller coaster with a built-in lift hill that could pull the cars back down an incline. Stocks have been on a roller coaster ride, and a rare economic event suggested a similar “lift” was on the horizon.

That Luke Lango underlined in a presentation on Wednesdayhe believes that we are only in the early stages of the “Great Technological Reversal of 2024”. If the macro economy plays out as it has in the past, markets should see multi-year booms like we saw in the late 1990s and post-Covid years.

We are already seeing signs of an improving outlook. Since our last update, the Nasdaq-100 is up 4%, and one of our picks from last week, Informatics (INFO) increased by 6%.

Better yet, we continue to see more gains to come. To understand why, you can still watch Luke’s presentation, which will be available for a limited time here.

In the meantime, our team has picked three other AI stocks that we believe will benefit from this enormous reversal happening before our eyes…

AI powered coding

Technology company shares GitLab Inc. (GTLB) has fallen as much as 49% this year after management provided full-year forecasts that fell short of Wall Street estimates. Revenue is expected to rise “only” 26% to $728 million, while operating profit is “only” $5 million to $10 million.

We say “only” because GitLab’s expected growth rates are still absolutely amazing. Analysts expect the company’s revenue to grow in the mid-20% range through 2028 and earnings to quintuple in the same period.

This is because GitLab (not to be confused with GitHub) is benefiting from rapid improvements in AI for programming… and the increasing expectations that come with it. As GitLab CEO Sid Sijbrandij recently noted, organizations are under increasing pressure to deliver software faster and find real use cases for AI.

“They’re looking beyond just generating code,” Sijbrandij said in his company’s Q2 earnings call. “They are looking to integrate AI into all aspects of software development to deliver tangible results.”

This is where GitLab comes in. The company is a “DevSecOps” firm – short for devescape, dryugliness, and OperraticS – that helps developers collaborate, automate product delivery, and add built-in security to the software they develop. Gartner ranks GitLab right THE industry leader in its annual Magic Quadrant ranking.

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GitLab has also been quick to adopt AI programming in its own products. Users who pay for premium features get access to increasingly powerful AI tools that can even write code for users. As Luke noted in a recent update:

Time to pay attention to the “other guys” in the AI ​​Boom…

Coding solution provider GitLab (GTLB), meanwhile, just reported stunning quarterly results in which revenue grew more than 30% year-over-year thanks to growing demand for its new AI coding assistant tool, GitLab Duo.

This stock is up over 30% in the past month.

In addition, the technological reversal anticipated by Luke should improve enterprise demand. We’re already seeing some green shoots from GitLab itself, with second-quarter revenue of $183 million beating Wall Street estimates by 3% and earnings per share of $0.10 beating 50%.

That’s why we’re once again bullish on this overlooked stock. Shares continue to trade 31% below 2024 highs, and we believe a sustained tech recovery will move GitLab back to previous valuations.

Riding Cloud Demand

Seagate Technology Holdings PLC (STX) is one of two major players in the hard disk drive (HDD) industry – a cyclical business that has historically seen booms and busts every three to five years. PC upgrade cycles can cause demand for drives to fluctuate wildly, and the relatively inelastic supply of HDDs means prices will exaggerate these peaks and troughs. Seagate’s revenue has swung as much as 40% from mid-point levels.

This makes this particular upcycle particularly remarkable.

Over the past few years, Seagate has transitioned its portfolio to focus on high-capacity drives for cloud providers. AI requires enormous amounts of storage space, and analysts at Goldman Sachs believe that about $1 trillion will be spent over the next few years on data centers and other AI-related infrastructure.

This will create a new boom period for Seagate’s business. Analysts believe the company’s revenue will grow as much as 40% this year and another 13% in fiscal 2026. High operating leverage means profits could grow more than seven times from 2024 levels.

Louis Navellier’s portfolio grader took over these changes as well. This week, the system upgrades Seagate from “Buy” to “Strong Buy” based on increasing earnings momentum and positive analyst reviews. These are traditional signals of higher earnings to come, as markets tend to be slow to incorporate improved expectations. Analysts have now raised their 2026 earnings estimates by 50% since early 2024.

Of course, investors will need to keep their finger on the ‘Sell’ trigger once the boom wears off. HDDs are losing market share to SSDs in the consumer market, and we believe that high-performance data centers may eventually follow this path as well. Seagate has a much weaker competitive position in SSDs.

However, we see that the down cycle is still relatively far into the future. For those with a one- to two-year time horizon, the recent sale of Seagate provides an attractive entry point for a company benefiting from a new business cycle.

The doctor will see you now

finally, Eric Fry notes this week that current market conditions are particularly favorable for the healthcare and technology sectors. In his weekly summary he writes:

These sectors tend to thrive during mid-cycle recoveries. With high initial investment in research and development, they ultimately reap the benefits of lower interest rates, which reduce borrowing costs and increase profitability.

There are plenty of excellent health tech firms that span both industries. Dozens of startups focusing on the use of AI in drug development have emerged in recent years, and many established firms such as Novo Nordisk A/S (NGOs) are pouring billions of dollars into the same field. However, drug discovery is inherently risky, and it is often difficult to know which drug candidates will be successful in clinical trials.

That is why I would like to emphasize Oscar Healthcare Inc. (OSCR) as an alternative way to invest at the intersection of health and technology without the risks that come with drug development.

Oscar is a technology-advanced health insurance company. The firm was founded in 2012 to “create the kind of health insurance company we would want for ourselves,” and now offers health plans through a superior technology platform. Users can create personalized plans, visit virtual primary care physicians (PCPs) and access a provider network that has been optimized for quality and cost.

These relatively simple improvements helped Oscar differentiate itself from legacy insurers. The company receives one of the highest net promoter scores in the industry (a reflection of the loyalty of its policyholders) and is on track to grow revenue by 20% annually through 2027.

Oscar also scores well on Louis’s Portfolio Grader for excellent sales growth, positive earnings surprises and institutional buys. The stock has more than doubled in 2024 as smart money investors turn to the healthcare and technology sectors.

Fortunately, the New York-based insurer appears to be still trading at a discount. The stock remains a third below its 2021 IPO level, and the fast earnings growth rate means that redirect the price-to-earnings (P/E) ratio is low. The stock trades at just 12 times 2026 earnings — not much more than related slower-growth insurers. Given Oscar’s long growth path, we believe the start of this new technology cycle will be tremendously beneficial for the company.

An unusual September

In an update this week, Luke noted that September is historically a terrible, horrible, no good, very bad month for stocks. Since 1928, stocks have averaged a 1.2% decline over this period.

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The start of this September certainly lived up to its reputation. Earlier this month, we saw Nasdaq-100 prices fall as much as 6%.

However, things will change as we enter fall. In his latest briefing, Luke talks about how a rare event in September should mark the start of a multi-year bull market and why high-quality AI firms are poised to do particularly well. Additionally, he highlights three companies that he believes will skyrocket in the coming months.

However, the video won’t be available for long. So make sure you watch it here now.

Until next week,

Thomas Yeung

market analyst, InvestorPlace

The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

At the time of publication, the responsible editor had (either directly or indirectly) no position in the securities mentioned in this article.