Photo by Mohamed Nohassi on Unsplash
 

It is fair to assume that any data, from visual to textual, has been used to train AI models since the dawn of the Internet. It is now incumbent on AI companies to clean and fine-tune those datasets to reduce noise and deliver useful products.

In the worst-case scenario, even if current AI models don’t budge from their performance ceiling, they would still be massively useful for automating tasks. As of March 2024, AI reporter Maxim Lott rated Claude-3 as the best performing model, achieving an IQ score of 101, with ChatGPT-4 falling behind at an IQ of 85.

On September 24th, OpenAI is scheduled to release Strawberry as a standalone ChatGPT offshoot, purportedly customized to offer a particular set of advantages and drawbacks. However, given the clear trend of performance improvements, exposure to AI stocks seems sounder than ever.

In the recent Q1 FY2025 earnings call for Oracle (NASDAQ: ORCL), billionaire Larry Ellison noted his bullishness on data center growth for generative AI models.

“When I talk about building gigawatt or multigigawatt data centers for these AI models, these frontier models, the entry price for a real frontier model for someone that wants to compete in that area is around $100 billion,”

The question is, which publicly traded companies will be the beneficiaries? Considering their 3-month price action, these are the AI candidates for September exposure entry.
 

Honda Motor Company (HMC)

Why is this legacy Japanese auto manufacturer on an AI stock list? To kill two birds with one stone – eVTOL and AI. Within a 3-month period, HMC stock is down 3.6%.

If any company is to reliably unroll a practical and robust autonomous flying taxi, it’s Honda. Unlike other eVTOL companies, Honda adopted a hybrid approach, combining a gas turbine with battery storage that powers 8 rotors for vertical take-off and landing. Having already received FAA’s certification for its engine and airframe, Honda eVTOL is set to have one of the longest ranges of up to 400 km (250 miles).

To boost AI capability for autonomous flight, Honda recently invested in SiLC Technologies,  via Honda Xcelerator Ventures, for its frequency-modulated continuous wave (FMCW) lidar solutions. The company’s Eyeonic Vision Chip extends long-range detection over 2km, giving advanced machine vision to eVTOLs.

Honda first announced its AI platform, Cooperative Intelligence (CI), in November 2022, featuring mapless cooperative driving technology. Most importantly from an investing perspective, Honda’s financial health is only growing stronger, as shown in the company’s free cash flow figures from 2020 to 2024.
 

Image credit: Honda
 

At the end of August, Honda reported a 105% year-over-year global production increase, delivering 2,179,983 vehicles from January to July 2024. 

Currently, HMC stock is underinvested, priced at $31.51 per share against the 52-week average of $32.98 per share. According to WSJ, the average HMC price target is $39.26, giving investors a potential upside of 24%.

Pegasystems Inc. (PEGA)

Pegasystems is similar to Palantir (PLTR), having its own business unit Pega Government. Like Palantir, the company utilizes generative AI to identify and streamline workflows of organizations in order to boost their efficiency. Within its Pega Infinity suite, Pega GenAI even generates user interfaces.

Suffice to say, these solutions are a major boon to companies looking to offset costly developer expenditures and rapidly deploy software automation. By partnering with Google Cloud, AWS and Microsoft Azure, Pega Cloud offers enterprises easy integration to their existing services.

As of latest Q2 2024 earnings ending June 30th, Pegasystems reported 119% year-over-year free cash flow increase to $218 million. In contrast to net loss of $46.8 million in the year-ago quarter, the company generated $6.6 million net income (GAAP) this quarter. Subscription revenue generated the largest growth at 26%, ahead of Pega Cloud’s 17% growth.

Against the 52-week average of $56.04, PEGA stock is now priced at $67.14 per share, having received a 13% value boost over the last three months. The average PEGA price target is $83, giving investors a potential upside of 23%, according to Nasdaq data. Interestingly, PEGA’s low estimate of $74 is also above the current price level.

Advanced Micro Devices (AMD)

Since June’s in depth coverage of AMD vs Nvidia, (NVDA) AMD stock dropped by 7% following wider market pullback. Nonetheless, AMD exposure is now more relevant than before. Not only is AMD now the preferred choice for CPUs after protracted Intel mishaps, but the company is making a concerted effort to prioritize AI chips over high-end GPUs for gaming.

In a recent Tom’s Hardware interview, AMD’s general manager of Computing and Graphics division, Jack Huynh, emphasized the race to capture developers as a key expansion strategy.

“Because without scale right now, I can’t get the developers. If I tell developers, ‘I’m just going for 10 percent of the market share,’ they just say, ‘Jack, I wish you well, but we have to go with Nvidia.’ So, I have to show them a plan that says, ‘Hey, we can get to 40% market share with this strategy.’ Then they say, ‘I’m with you now, Jack. Now I’ll optimize on AMD.’ Once we get that, then we can go after the top.”

This is not surprising given AMD’s acquisition of ZT Systems in August, worth $4.9 billion, alongside July’s acquisition of SiloAI, Europe’s largest private AI lab.

Both NVDA and AMD stock have fallen within a 3-month period, but AMD stock is slightly ahead at -5.5% vs -7% for Nvidia. AMD’s 52-week average is $148.80 vs current price of $151.57 per share. Nasdaq’s average AMD price target is $190.25, giving investors a potential upside of 25%.

The bottom outlook for AMD stock is aligned with the current price level, at $150 per share.

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