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

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 Fed’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. Fed’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 Quick QuoteTSM - Free Report) , Super Micro Computer Inc. (SMCI Quick QuoteSMCI - Free Report) , Micron Technology Inc. (MU Quick QuoteMU - Free Report) , Snowflake Inc. (SNOW Quick QuoteSNOW - Free Report) and Western Digital Corp. (WDC Quick QuoteWDC - Free Report) . 

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 today’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 stocks’ 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, “The 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.”

More importantly, the Fed’s latest “dot-plot” 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 Fed’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 world’s best AI chipset developers. The company is experiencing solid demand for its advanced technologies, such as 3-nanometer (nm) and 5nm. TSM’s growing efforts to ramp up the production of 3nm and development of 2nm is a plus.

TSM is the largest manufacturer of NVIDIA Corp.’s (NVDA) chipsets. NVIDIA is globally the largest developer of generative AI-based chips. TSM also caters to Advanced Micro Devices Inc. (AMD) and Intel Corp. (INTC) to name a few. 

TSM has an expected revenue and earnings growth rate of 23.6% and 24.5%, respectively, for the current year. 

Impressive Price Upside Potential for TSM Shares

Taiwan Semiconductor is currently trading at a 13.5% discount to its 52-week high price. The short-term average price target of brokerage firms for the stock represents an increase of 22.3% from the average target price of $204.71. The brokerage target price is currently in the range of $170-$250.

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Super Micro Computer Inc.

Zacks Rank #3 Super Micro Computer has been benefiting from robust demand for servers powered by high-end generative AI chipsets. SMCI is positioned as a leading provider of one-stop-shop, high-performance rack servers capable of powering advanced AI applications.  

An astonishing rise in demand for high-performance rack servers has boosted SMCI’s top and bottom lines. In order to support aggressive workloads, data centers are aggressively demanding high-density rack space and direct-to-chip liquid cooling. SMCI makes servers for enterprise, cloud, AI, metaverse and 5G telco/edge IT infrastructure.

Super Micro Computer has an expected revenue and earnings growth rate of 87.5% and 51.7%, respectively, for the current year (ending June 2025).

Enormous Price Upside Potential for SMCI Stock

Super Micro Computer is currently trading at a 64.5% discount to its 52-week high price. The short-term average price target of brokerage firms for the stock represents an increase of 86.4% from the average target price of $819.07. The brokerage target price is currently in the range of $325-$1,500. 

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Micron Technology Inc.

Zacks Rank #3 Micron Technology has been benefiting from the enormous growth of AI applications that boosted demand for its high bandwidth memory chips. MU is a major producer of memory chips used in NVIDIA’s GPUs. MU is benefiting from improved market conditions, robust sales executions and strong growth across multiple business units.

Micron Technology anticipates the pricing of DRAM and NAND chips to increase, thereby improving its revenues. The pricing benefits will primarily be driven by rising AI servers, causing a scarcity in the availability of cutting-edge DRAM and NAND supplies. Also, 5G adoption in IoT devices and wireless infrastructure will spur demand for memory and storage.

Micron Technology has an expected revenue and earnings growth rate of 61% and more than 100%, respectively, for the current year (ending August 2025).

Tremendous Price Upside Potential for MU Shares

Micron Technology is currently trading at a 44.6% discount to its 52-week high price. The short-term average price target of brokerage firms for the stock represents an increase of 74.4% from the average target price of $154.71. The brokerage target price is currently in the range of $67-$225.

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Snowflake Inc.

Zacks Rank #3 Snowflake is a major company providing cloud infrastructure to AI-based ecosystems. SNOW’s platform offers Data Cloud, which enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data and data products applying AI for solving business problems.

SNOW helps large enterprises using multiple public cloud services and their own servers to aggregate data into a “data pool” that produces a single source of information. Snowflake’s Cortex AI platform enables businesses to fine-tune models for their specific use, search unstructured data, and use AI to produce valuable insights. SNOW also offers its “Copilot” tool with Cortex AI architecture.

Snowflake has an expected revenue and earnings growth rate of 22.3% and 53.6%, respectively, for the current year (ending January 2026).

Massive Price Upside Potential for SNOW Stock

Snowflake is currently trading at a 53.4% discount to its 52-week high price. The short-term average price target of brokerage firms for the stock represents an increase of 53.5% from the average target price of $171.36. The brokerage target price is currently in the range of $121-$220.

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Western Digital Corp.

Zacks Rank #3 Western Digital has been gaining from steady momentum in its HDD and Flash businesses. Higher flash ASPs aided both Client and Consumer end-market segments. In the first quarter of fiscal 2025, WDC’s HDD segment is forecast to gain from the healthy uptake of the SMR product portfolio. The strategy to commercialize ePMR, OptiNAND and UltraSMR technologies bodes well.

In July 2024, WDC unveiled the BiCS8 two-terabyte QLC memory die, crafted to meet the increasing demand for data centers and AI storage. It is currently sampling 64 terabyte SSD, and further aims to deliver volume shipments by the end of 2024.

WDC expects the proliferation of generative AI-driven storage deployments to result in a client and consumer device refresh cycle, and boost content growth in smartphone, gaming, PC and consumer in the long run. Increasing AI adoption is likely to drive increased storage demand across both HDD and Flash at the edge and core, thereby providing ample business opportunities.

WDC has an expected revenue and earnings growth rate of 31.8% and more than 100%, respectively, for the current year (ending June 2025).

WDC Stock Offers Robust Upside Potential 

Western Digital is currently trading at a 21% discount to its 52-week high price. The short-term average price target of brokerage firms for the stock represents an increase of 36.6% from the average target price of $90.06. The brokerage target price is currently in the range of $75-$115.

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