Nvidia (NVDA) shares closed at another record high after announcing new AI chips at the Consumer Electronics Show (CES). Piper Sandler has pointed out in a note that Nvidia's GPU building capacity foreshadows a growth for application software-based stocks as generational AI and data processing capabilities pick up.
Piper Sandler Senior Research Analyst Brent Bracelin joins Yahoo Finance to give insight into the note and why stocks like Workday (WDAY) , Monday.com (MNDY), and Klaviyo (KVYO) are some top ideas to own in 2024.
Bracelin explains why there's a great investment opportunity with these stocks: "There were over 40 cloud software companies growing over 30% back in 2021. If you fast forward to next year there's only four. So growth is scarce again. We think we're entering a whole new investment cycle for these cloud application companies. This time it's really driven by the need to move these applications, these old applications where your data is locked up in on-prem software, you have to modernize to unlock the data and open up some new AI opportunities. So we're at the beginning of what we think is a big generational investment cycle."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
- We do want to talk a little bit more about the broader tech market moves today, starting with the big dog moving up the Magnificent Seven, NVIDIA, shares jumping after announcing that it's launching three new graphics cards. Meanwhile, Piper Sandler says NVIDIA's GPU capacity build foreshadows growing data tailwinds, thus potentially ushering in a new data renaissance. Piper Sandler citing this as part of key themes to watch for application software.
So here for what may be in store for cloud applications and analytics this year, we have Brent Bracelin, Piper Sandler Managing Director and Senior Research Analyst. Brent, thank you for being here with us. We're going to dig more into the specifics of cloud names specifically. But starting on this chips news coming out of CES from NVIDIA, I wonder if this AI renaissance that we mentioned before, is that baked into the market already? Or do you think this news gives us a renewed reason for more market euphoria around some of these AI names?
BRENT BRACELIN: Listen, I think '24 is going to be a little bit different in that AI is known. AI is clearly driving a lot of stocks, driving markets. Our favorite play obviously is Microsoft, but that's very well known and very well appreciated. What's less appreciated is going one step further, who could benefit from AI that might not be fully appreciated?
And so, that's where we bring up folks like a Workday, that's where we bring up folks like a Snowflake. So there are additional folks out there that in that application space that we think will actually be indirect beneficiaries. Clearly, all of the attention is being paid to the Magnificent Seven for good reasons, but we think there's a broader opportunity out there for investors willing to take a little risk.
JOSH LIPTON: And Brent, great to see you, as always, my friend. When you talk about application software, just as a vertical, Brent, I'm just interested. Why are you bullish into 2024? What are the reasons for optimism?
BRENT BRACELIN: Yeah, good question. So you have to understand the last big cycle for these cloud software companies actually happened during the pandemic. There was a forced move to accelerate, pull forward your cloud investments because of remote work. And so you had this huge acceleration in spending on the cloud application space.
Unfortunately, the last two years have been tough. So we've had a lot of cost optimization, moderating growth. There were over 40 cloud software companies growing over 30% back into 2021. If you fast forward to next year, there's only four. So growth is scarce again. We think we're entering a whole new investment cycle for these cloud application companies.
This time, it's really driven by the need to move these applications, these old applications where your data is locked up in on-prem software. You got to modernize to unlock the data and open up some new AI opportunities. So we're at the beginning of what we think is a big generational investment cycle. We saw one for a blip, for a little bit of a bubble in the pandemic. We're about to enter a much more meaningful cycle for cloud applications.
