GET IN EARLY! These 7 Stocks are About to Explode

AI is broken and it's taking stocks down with it. Crushing AI names like Oracle and Iron down 35% over the past month. Hey bow tie nation, Joseph Hog with your weekly stock market update before the week starts with the stocks to watch and the stock market news you need to see. This week I'm going to show you why AI is breaking under its own success. The four critical breaking points and then seven stocks that are positioned to solve this crisis for what could be massive returns. For early investors, this is going to be historic. Like finding Nvidia before the GPU shortage and its 900% return, like SanDisk before that memory shortage and it making 53 times your money. Stick around and I'll show you why Netflix is also the market's most underestimated stock and how blowout earnings are about to make the market look a lot cheaper. On to that big opportunity, though, because AI is broken and Wall Street is just finally realizing it. Nvidia, ticker NVDA, and Micron, ticker MU, are just barely holding on since June. The global X AI fund, that AIQ of 84 companies in the space, is down 5%. And AI cloud providers like iron and Oracle have plunged, losing more than a third of their value. And it is because the entire AI revolution is entering its next phase from building the smartest models to making AI practical. And nobody is ready for this. And folks, get this straight. If we do not get this right, the consequences will be worse than anyone has predicted. AI isn't going to disappear, but it's going to become so costly that companies are going to slash jobs and only the biggest tech giants are going to be able to afford it, locking out small businesses and consumers. It it's going to be an AI future owned only by the rich. I'll explain why AI is broken, how we fix it, and then the seven stocks that are helping to solve this problem for massive returns. And the biggest issue here is hilariously exposed in a giant $500 million whoopsie last month. Axios reports that an unnamed Fortune 500 company failing to set limits on its employees AI use burned through costs of a half a billion dollars, roughly its entire year budget, blown in a single month. And that is not an isolated incident. Microsoft has been rumored to be cutting back on its AI spending after its engineers were caught spending $2,000 a month each. Uber has spent its entire year's AI budget just in the first 3 months. The problem here is at the heart of AI costs and how language models like GPT and anthropics claw to make money. Whenever you or a corporate user prompts the AI model or generates a response, the cost comes in the form of tokens. Now, the number of tokens used increases with longer prompts, more detailed responses, types of AI models, and a number of other factors. Now, in the mad race to use AI, companies have thrown the budget out the window. If you can lower costs elsewhere in the company or boost sales, who cares how much you're spending on tokens or to use AI? And so, we've got this trend called token maxing, where companies actively encouraged employees to use AI as much as possible. Meta platforms even set up a leaderboard ranking who was using AI the most with awards like Session Immortal and Token Legend. In just 30 days, Meta employees burned through over 60 trillion AI tokens, costing hundreds of millions of dollars on the clawed AI model. So obviously, it did not take long to see how all this can go horribly wrong with stories of companies blowing through their annual budget and little to show for it. Nation, one thing I learned as an analyst is that every investment craze eventually shifts from growth at any cost to return on investment. It is that point, that shift that you need to be ready for as an investor. Think about it like this. The problem is companies are using the world's top heart surgeon to put on a band-aid. They're using the most expensive AI models for every email, every memo, every image of Lincoln at the battle of Actum. And that is where the first major crisis in AI is hitting and where the solution comes in AI gateways. Instead of connecting an application directly to GPT or Claude and then blowing the budget like a bachelor with a VIP wristband in Vegas, gateways sit in the middle and then route that AI request to the best model by price and performance needed. To do this, gateways ask questions like, does this task require the performance of an expensive Frontier model, or can it be done on open source for a fraction of the cost? Has someone already asked this question today or recently, and can we use that instead? And those decisions might save pennies on a single prompt, but multiply it across millions of AI requests and the savings become enormous. It's called intelligent routing and it may become the most important software layer in AI and possibly the purest solution to this entire AI system crisis is Cloudflare ticker NE which has quietly evolved from a cyber security company into an air traffic controller. Cloudflare's gateway sits between the applications and language models deciding where every request should go. Not only does the company help reduce costs, but also reduces latency times and improve reliability with dynamic routing, Cloudflare has a massive global network across 300 plus cities, a position to serve 95% of the world's internet connected population. Shares are up 47% in the last year, but could head much higher on this gateway theme. Service Now, ticker, solves a different part of this problem and is my favorite undiscovered opportunity here. After a gateway routes the AI request, Service Now's agent orchestrator and Control Tower decide which agent should do the work. Think about it this way. You wouldn't ask the same employee to process a refund, clean the office, and plan out your next marketing campaign. AI agents are just as specialized, and the costs vary wildly by that specialization. So, Service Now breaks those jobs down into the most effective and efficient agents, tracks their performance, and measures whether they actually save time and money. That orchestration reduces duplicate work, prevents runaway AI usage, and gives the company a centralized way to manage thousands of agents. The stock has been slammed on fears that AI is going to replace some of its software business, but this company is going to be critical in this AI revolution. I recommended buying the stock when it plunged below $100 last month, and I'm still buying. But even with that gateway solution, AIU still needs observability, the data, the analytics that tell you which agents and prompts are doing the most work, which are about as useless as the office guy who replies reply all with just thanks. And most companies have no idea which AI agents are creating value and which prompts are wasting millions of dollars. This is where the AI version of FinOps comes in, measuring every request, every agent, and every dollar. So companies have that data and can optimize without breaking the budget. And here, instead of some in accounting named Steve telling you that your sticky note budget is way over for the month, AI has data dog, ticker DDOG, with its agent observability platform tracing every request from start to finish, showing exactly which prompts are used and how many tokens they used. Maybe even more valuable though, Data Dog lets companies compare prompts, models, and agents before rolling them into production. The stock is already up 90% this year, but nobody else has this kind of data and the analytics platform that is going to make AI work. It is impossible to talk AI without mentioning Palunteer to PLTR. While I think data dog does this observability better, Palunteer has more inroads across the AI revolution like security, agents, and deployment. Palunteer also handles orchestration here coordinating securing and holding those thousands of agents accountable through its AI platform. Palanteer connects everything directly to a company's operational data and processes. The AIP observability tool provides execution history, tracing, token usage, and workflow logs so a company can see exactly what its agents are doing. This is another stock hit by those AI software fears, but long-term will rebound into a great investment on that next phase in AI. Now, after the gateways, after the observability, another possible solution to this coming AI crisis is something I talked about last month, the use of open-source models to lower those costs. You see, the frontier closed sourced AI models run directly on anthropic or OpenAI's hardware and data centers and and through their paid models. Open- source AI can be downloaded and run on a company's own servers. And while that means higher setup costs for hardware, it can save companies millions of dollars in costs running those AI programs. You're not paying the token cost to GPT or Claude, you're only paying your own hardware and electricity costs. Open source also comes with the added benefit that you're not locked into any vendor relationships and all your data stays inhouse. And we got our clearest evidence yet that companies are shifting to open source models from comments by databick CEO Ali Goatsy being brutally honest on the death of token maxing while pointing out that his customers are shifting as much as possible to less costly open source models and in kind of an aha moment for me saying Chinese models are extremely popular with datab bricks customers. That's when I recommended shares of Alibaba to her Baba on the 21st of last month at just $94 each as the surprise winner in this coming open-source boom. The stock is up 20% in the last 3 weeks and still has much further to run. Alibaba's Quinn AI model is a hybrid thinking customizable framework being used by developers and enterprise customers recently surpassing 700 million downloads as that global shift to the lower AI costs expands. In benchmark and thirdparty tests, Quinn consistently ranks right up there with Claude and GPT. And in recent tests, outperforming Claude Opus on five benchmarks. And here, while users can download Quinn and run it on their own servers, growth in usage also translates to benefits for Alibaba, most directly through hosting from Alibaba's cloud division. The company also manages deployments developments initial setup, and agents, as well as the tools for new Quinn users. So think of Quinn like a gateway product bringing potential customers in for other services and sales. And now we're those first three solutions, the gateways, the observability, and the open source or to lower costs and make AI practical for beyond those trillion dollar tech giants. The final bottleneck and solution here could be the biggest of them all. Because the cheapest AI token is the one you never have to send to a data center nation. Every time your phone, a robot, or a self-driving car has to send that request halfway around the world to a data center. not only adds cost but also latency time and bandwidth. Now that's fine for writing an emo, not so much if your car is trying to avoid a pedestrian or a robotic arm in surgery. And that's why the next evolution here is an edge AI where intelligence moves out of the cloud and directly onto the phones, the cars, and the robots. Now, that's not only going to slash cost, but is going to cut latency from seconds to milliseconds, protect that sensitive data, and unlock entirely new applications that just aren't possible when every decision has to make that round trip to a distant data center. Now, Qualcomm, ticker QCOM, serves the consumer market here, spending years preparing for the shift from the cloud into the device itself. Its Snapdragon chips combine CPUs, GPUs, and dedicated MPUs that can run AI language models directly on those cars, phones, and laptops, and then the IoT devices. Their shares here are only up 20% over the past year and have only recently started getting the attention for this. And one of my favorite AI stocks for a long time has been Broadcom, Ticker, AVGO, up 46% over the year and nine times higher than when I first recommended it back in 2022. Broadcom is known for building the networking backbone and the accelerator chips of the data center, but this company's edge AI strategy goes way beyond that. Its custom silicon and communications infrastructure will allow AI to move out of that cloud and closer to where the data is generated in the smart homes, the hospitals, and the factories. Now, this is not one of the cheapest AI stocks I follow. You're going to pay for that 60% plus pace of revenue growth and a company that will guide the future of AI. I'm going to reveal the stocks I'm watching this week next. But first, if you haven't yet, use the special invite link below to join me on the Blossom Investing app and see every stock in my portfolio. It's totally free to use and helps support this channel. So, I appreciate that. You'll also be able to see what over 500,000 investors are talking about in the social feed. So, look for that invite link below or just scan the QR code here. Netflix, ticker NFL, reports earnings Thursday and what I continue to believe is one of the market's most underpriced stocks. Shares are down 41% over the last year as subscriber and revenue growth slows from that yester-year pace. But against that stock price, these fundamentals here are continuing to impress. Ads crossed 250 million monthly active viewers from 190 million last year, 31% growth, and that ad tier is being expanded to 15 more countries. Revenue is still expected up 13% this year. What really excites me here is management is leveraging that up into 41% profit growth to $359 per share. The stock trades for just 24 times on that price to earnings, the PE ratio, even cheaper, a price of just 20 times this year's expected earnings. If we compare that against the average multiple where it's been in the past, we see how inexpensive this stock has become. Now, granted, with that slower growth in sales and earnings, investors just aren't going to be willing to pay $50 for every dollar in earnings like they did in 2024, but fair value is easily around 30 times on a price toearnings basis. That 30 times multiple on the $359 in forecasted earnings this year puts the share price closer to $107 per share or about 47% higher from here. The market has not been kind here with the stock dropping in each of the last four earnings reports. But I think that pessimism is overdone. Any good news and we're likely to get it on that ad tier expansion or the NFL partnership which is set to add another five games this year. Any catalyst could send the stock higher. The iShares 20 plus treasury bond ETF the TLT fell 1.2% last week on those higher interest rates as the war with Iran ignited once again. Now, that crushed the call spread I highlighted last week. Buying the $85 calls and selling the $87 strike call option for 93 cents each, now valued at just 56 cents each. I'm continuing to hold on to that and buying more because I think that turnaround in rates makes this one a very profitable buy that August 21st expiration. Now, we're going to see the pace of inflation come way down in this week's consumer price index report. And that should ease pressure on the Fed to raise those interest rates. That combined with further inflation reports this month and next, along with any return to a ceasefire, it's going to bring those rates down and send the TLT back up over $85 a share. And updating our market outlook, we could see some very positive data come out this week. First with the consumer price index, that CPI measure of inflation. Then with the start of earning season, both should help break the market out of its funk and then push stocks higher. That CPI drops Tuesday against inflation that has been the big boogeyman for stocks and interest rates over the past few months, but could bring a giant sigh of relief against a big month-over-month increase of half a percent reported for the May inflation and an annual pace of over 3%. June inflation is forecast to show prices dropped 2% for the month. Now, of course, a lot of this is those energy prices and that core inflation is still expected positive at 0.1% increase over the month, but it is a big change in that pace, and I continue to believe that this is going to change the narrative on those Fed interest rates. Then, second quarter earnings for the April to June period start coming in on Tuesday as well. And I did a double take when I saw these forecasts. Overall, companies in the S&P 500 market index are expected to report profits grew 23% over the year. Since companies almost always beat those forecasts, it means actual growth could be closer to 28% by the time reporting wraps up. Outliers here are companies in the energy sector expected to report earnings more than doubled, 122% higher over the year. And a trend I think is going to continue as that price of oil finds support on that Iran back and forth. Tech stocks are still reporting 60% plus growth and materials companies are also doing well here. But then there is some weakness under the hood here with six of the 11 sectors forecast to post earnings growth under 10% for the quarter. So I'm going to be watching forward commentary here by management in those sectors to make sure that weakness isn't systemic or recession problem. But nation that overall profit growth is expected to continue with thirdarter estimates for 26% growth. The earnings bonanza could start making stocks look a lot cheaper. Right now, the market is trading for just under 26 times on a price toearnings basis. Now, that's the S&P 500 market index at 7575 close on Friday, divided by the total profits of those 500 companies of $293 over the last four quarters. It means the market is priced at $25.85 for every dollar in earnings. Investors are paying about 25 times earnings to buy a share of the market. That is not super expensive bubble territory like we saw with the free money era of 2020 or even the peak around 28 times this year and last. But it isn't cheap either and it's why investors are getting nervous and selling on every bad news story. But now look at what happens when we replace the second quarter 2025 earnings of $67 with what is likely closer to about $86 for Q2 of 2026 reporting over this next 6 weeks. That trailing earnings jumps from $293 to over 312 for the index. That brings the PE ratio, that price down to 24.2 times the reported earnings. That might not seem like a big change, but it is much closer to the safety of that 5-year and 10-year average for the market. Now, I still do think that we see some weakness later in the year as the market starts pricing in and earnings slowdown next year. But for right now, we shift from investors thinking, "Boy, stocks are looking a little stretched. I better watch every headline for a sign to get out to a maybe a calmer environment where investors can calm down a little and focus on earnings to support stocks higher. Join me on the Blossom Investing app free with a special invite link in the description. Don't forget to join the Let's Talk Money community by tapping that subscribe button and clicking the bell notification.