All attention is focused on Nvidia Corporation this week as the company prepares to unveil its most recent quarterly results after Wednesday’s closing bell. Nvidia has been a dominant force in the market for graphics processing units (GPUs) utilized by datacenters to implement artificial intelligence technology.
Amidst what is anticipated to be another year shaped by “AI enablers,” Ken Laudan, the portfolio manager of the Buffalo Large Cap Fund BUFEX BUIEX, recommends exploring three stocks of companies engaged in network communications, data storage, and power management to capitalize on the trend.
The Buffalo Large Cap Fund holds a four-star rating within Morningstar’s “Large Growth” fund category, boasting a three-year performance ranking in the top 15% among 1,119 funds. As of December 31, Nvidia NVDA, -5.68% stood as the fund’s fifth-largest position, constituting 4.6% of the portfolio.
Before delving into Laudan’s additional stock selections, let’s delve into the latest estimates for Nvidia as of Monday morning. The company witnessed a surge in GPU sales in the middle of last year, resulting in staggering year-over-year growth projections for quarterly figures. However, analysts surveyed by FactSet anticipate a deceleration in Nvidia’s sequential growth. Below are the estimates for the upcoming report, with revenue denoted in billions.
| Estimate for quarter ended 1/29/2024 | Quarter ended 10/29/2023 | Quarter ended 07/30/2023 | Quarter ended 04/30/2023 | Quarter ended 01/29/2023 |
|---|---|---|---|---|
| Sales | $20,395 | $18,120 | $13,507 | $7,192 |
| Change from year-earlier quarter | 237% | 206% | 101% | -13% |
| Change from previous quarter | 13% | 34% | 88% | 19% |
| Earnings per share | $4.59 | $3.71 | $2.48 | $0.82 |
| Change from year-earlier quarter | 705% | 1262% | 850% | 29% |
| Change from previous quarter | 24% | 50% | 202% | 44% |
Nvidia’s quarterly sales are projected to triple compared to a year ago, with a modest 13% increase from the previous quarter. This signifies a slowdown from the sequential growth rates witnessed in the preceding three quarters.
In an interview with MarketWatch, Laudan expressed confidence in Nvidia delivering yet another exceptional quarter, surpassing consensus estimates due to robust demand from datacenter operators, including hyperscalers.
While Nvidia and Taiwan Semiconductor Manufacturing Co. are recognized as prominent “AI enablers,” Laudan highlighted the significance of diversifying investments to include “AI adapters” in the future. These are software-centric companies integrating AI large-language models into their enterprise or vertical software offerings. Laudan mentioned Adobe Inc., ServiceNow Inc., Salesforce Inc., MongoDB Inc., Snowflake Inc., and S&P Global as notable examples in this category.
For the time being, Laudan recommended exploring three additional AI enablers within the Buffalo Large Cap Fund:
Coherent
Coherent Corp. COHR, -4.48% specializes in utilizing optical fibers composed of silicon carbide material to produce components for devices requiring resilience in extreme temperatures. While these components find applications in vehicles and aircraft, Laudan views Coherent as a strategic investment aligned with the AI infrastructure expansion.
Laudan highlighted Coherent’s 60% global market share for optical transceivers, essential components facilitating enhanced data transmission among AI servers in the coming years. The total addressable market (TAM) for optical transceivers is estimated to reach \(6.5 to \)7 billion by 2027, up from $1 billion in 2023.
Pure Storage
Pure Storage Inc. PSTG, -4.82% introduced its FlashBlade//E product last year, a flash storage array designed for commercial use. Laudan emphasized that despite the prevailing preference for spinning hard disk drives in cloud data storage, flash storage offers superior durability. Pure Storage’s FlashBlade//E product lineup, including upcoming 150 and 350 terabyte variants, is poised to drive down costs further while enhancing datacenters’ storage efficiency.
Eaton Electric
Eaton Corp. PLC ETN, -0.43% specializes in providing power management solutions for datacenters, vehicles, and machinery. With AI applications demanding substantial processing power, the surge in electricity consumption necessitates robust power management infrastructure. Laudan underscored Eaton’s pivotal role in catering to the escalating power demands of datacenters, alongside its contributions to electric vehicle charging and aerospace equipment provision.
Laudan positioned Eaton as a key player in the power management sector, drawing parallels to Schneider Electric SE SU, -1.11%, a prominent French counterpart.
