The AI Boom Isn't Over: 3 Stocks You Need to Watch

Hello and welcome to Exponential. This week we're breaking down five stocks at major turning points from the next phase of the AI boom and shifting competitive landscapes. All right, Luke. Uh let's start with Qualcomm. Let's dig into the details a little bit there. >> I really like Qualcomm here and now. Um you they just got a big deal with Amazon and I think that really validates the new bull thesis on Qualcomm, right? Remember the the old bull thesis which is still very much alive rested almost entirely on physical AI edge AI it was all about Snapdragon Snapdragon silicon powering things like AI glasses these little bad boys in fact I think a Snapdragon is in the meta ray bands AI PCs wearables robotics um self-driving cars etc etc now that is a really compelling thesis but it's a long-term thesis it's several years out when we talk about these meta ray bands. They're selling a lot of them, but that's not really a high value item. AIP PCs, that cycle's not super robust right now. Wearables kind of becoming a thing, but also not a super robust cycle. The big robust cycle there is going to be robotics with humanoids and self-driving cars, and that is three to five years out. So, that bull thesis has been there. It's always been there. is still there and it's still compelling, but it's not going to drive the stock higher in the short term. What is is their new entrance into the data center game. So now they're creating custom AI chips for hyperscalers and they just won a deal with the biggest customer there, the biggest hyperscaler, Amazon Web Services. They are creating AI chips, custom AI chips for AWS, for AI applications. So, I mean, that's like that's a massive validation of this new business vertical they've created. It shows that the company's growth rates will accelerate over the next several quarters before the physical AI ramp shows up. Um, it's a multigenerational order. Uh it also includes a the option for Amazon to acquire up to $4 billion in shares of Qualcomm. So it it's a partnership. It's several years out. It proves that, you know, if Amazon's doing it, maybe Meta's going to do it, too. Maybe Google's going to do it, too. They're now in the game. The game that matters. The AI game that matters right now is selling chips into data centers. Qualcomm finally has that. And so when we look at the growth profile of this company, I think we're in a meaningful inflection point. Revenues this year are supposed to be down 3%. But look at what the street's modeling for. We're going to go minus3 to plus 5% to plus 15% to plus 21% over the next few years. And I think with this Amazon deal, those estimates move higher. We're undershooting. So maybe we go plus, you know, high single digits in fiscal 27 and then high teens in fiscal 28, maybe mid 20s in fiscal 29. This is a really big revenue growth ramp story and it should be additive to margins right now. Gross margins expected to stay flat around 53 54%. Ebida margin expected to stay flat around 34 35%. But I think with this Amazon deal with new hyperscaler customers, with the new data center business, we can actually see margin expansion. And this turns into a 25% plus profit growth story over the next few years for which you're only paying 17 times forward earnings, 14 and a half times forward Ebidtha, which is pretty much a, you know, right around the 5-year average, a little bit above the 5-year average for this stock. But the growth story is better than it's been in the past 5 years. So, love that setup. The estimates here have been declining. This is the forward 12-month estimates, EPS estimates on Qualcomm stock. But again, I think an inflection point is here. the Amazon deal, it changes the forward growth story. These all of a sudden forward 12 month moves up from 1020 back to 1250 and I think the stock starts to really work again. And then when we look at the chart for um for Qualcomm, this is a great inflection right here. Uh boom, lost the 200, retaking the 200, turned it into support, bounced above it, retake the 50. This is a Uturn. I very very very much like the setup on Qualcomm stock. It may be one of my favorite bigger AI stocks to buy this very week. >> Excellent. Okay, got some more questions there, but I want to have it be uh tied in with the next couple of stocks we're going to be talking about. So, uh the next stock up is Broadcom, which is, you know, one of the biggest players in that semis game. So, uh do you have any additional details there? >> Yeah, well, it's one of the biggest players in the custom silicon game, right? I mean, this deal that Qualcomm just won is a massive validation of the custom silicon movement. This idea that as opposed to Nvidia just selling the accelerators for everybody, Nvidia will still sell a lot of accelerators, but Meta is going to increasingly build their own and then buy some from Qualcomm and Amazon's going to build their own and buy some from Qualcomm and buy some from AMD and get some Intel CPUs in there. This is a really diversified game. And so when you get that diversification, that is a massive tailwind for the companies that provide the architecture, the technology behind that diversification. And the biggest one there is is Broadcom. Um Broadcom, they just reported earnings. The numbers are really good. They guided AI semiconductor revenue uh to double to $115 billion in fiscal 2027 and then double again in fiscal 2028 to about $230 billion. So if you kind of take 27 and 28 in that guide together, that's $350 billion in AI semiconductor shipments over the next two fiscal years. So they are really clearly winning big in the custom silicon game as well as a networking game. Broadcom's got a really big switching business. And so I think that's also driving a lot of the growth. And when we look at the overall growth rates on this company, I mean this is this is a massive grower. 66% this year again with that doubling of AI revenue or no the doubling is in 27 with 64% growth and then doubling again in 28 overall 58%. So this is a company whose AI business is doubling every year year-over-year and that is leading to the overall business growing at a 60% compounded rate. Now there's a big step down into fiscal 29 but the reason there's a big step down in fiscal 29 is because they're not really providing guidance out to fiscal 29. They just gave guidance out to fiscal 28 and that's where the numbers have moved up significantly. So once we get into fiscal 27 then they provide fiscal 29 guidance this number goes up a bunch too. Long story short this is a company that because of custom silicon and because of switching I think maintains a 50% plus compounded revenue growth rate into 2030 with margins that are going to stay pretty high leading to about 50% compounded EPS growth. And for all of that you're only paying I mean it's it's a ridiculously cheap stock against that that growth profile. Again, keep in mind 50% compounded EPS growth. That's what we're going to benchmark against. We're at 20 times forward earnings, 16 times forward EBIDA for 50% compounded EPS growth. That is ridiculously cheap. Even on its trailing basis, a 5-year average, we're below the 5-year average forward PE multiple, 13% below. We're 14% below the 5year average EVO multiple. We're 15% below the 5year average EV EV EIT multiple. So, I mean, across the board, outside of price to book value, which nobody really cares about book value on a semiconductor company like this, we're we're discounted on a 5-year average multiple, and that includes 2022, which was a horrible year for tech stocks and tech valuations and semiconductor stocks, semicond valuations. So, this is just a really really really cheap stock after the earnings report. Uh, the stock got hit. That is definitely a buying opportunity, especially when you look at the estimates here. I mean, look at this stock got hit after earnings, but look at the estimates. They just kept going higher. So you're getting this split between, you know, fundamental strength and stock price weakness. Sentiment going down, fundamentals going up. That usually resolves with uh price then picking back up to uh the fundamentals. When you look at the chart, we dropped right below the 200 day moving average, but I think we're showing support right here. This is a stock that when it gets hit, you know, look at this in liberation day. Look at this with the Iran war stuff. It gets hit and it goes right below the 200 day and then bounces right back above it. I think that's what we're doing. We're right above 200 day. They're gonna bounce right back above it. To me, this is a good entry point on Broadcom. I like Qualcomm and Broadcom along this week. >> Excellent. So, uh let's bring up that third player for this week and that's Marll. And I think with the last, uh stock that Bracom, you kind of answered my question. Are we in currently living in the next phase of the the AI boom where we we're starting to see the expansion of custom silicon? >> Absolutely. Yeah. I think that um well I custom silicon's been a thing for a while. It's just really accelerating, right? Everybody that tries to get into the game is actually having success. Uh AMD success, Intel success, Qualcomm success. Uh and so what that means again is a really big multi-year multi-generation tailwind for the providers of the technology and the uh licensing and the IP behind this custom silicon movement. Broadcom is number one in the game, but Marll is number two in the game. They have um they have custom silicon partnerships with Google, with Anthropic, with OpenAI, with Meta. They are very much involved in the uh in the custom silicon space. The company just had a really good earnings report, at least I thought. They raised their fiscal 2027 revenue outlook to about 12 billion, which is 45% year-over-year growth. uh up from 11.5 billion just just a quarter ago. They also boosted fiscal 28 to 18 billion dollars, 50% growth up from 16.5 billion years ago. And data center revenue is now about 80% of the total business and is guided to grow 60% plus in both years, fiscal 27 and fiscal 28. So much like Broadcom, when we kind of look at the numbers here, we're going to see a company that has stable high revenue growth for the next several years. When you look at this, I think his estimates will move higher, but we look at the consensus. Right now, we're at 46% in 20 fiscal 27, 51% in fiscal 28, 43% in fiscal 29, 26% in fiscal 2030, and then, you know, drop off there. But, I mean, when you look at the next three years, we're looking at 40 to 50% revenue growth every single year. I think that's that is the growth cadence for this company going forward, even beyond fiscal 29. Margins are going to stay stable. Gross margins in the high 50s. Eat down margins expanding from 36% this year up towards 3940% by 29 2030. Uh so this is a really really big growth story. Now the thing here is the valuation is a little bit more expensive than it is with Broadcom or Broadcom paying about 20 times forward earnings. Marll we're paying a little bit more. We're paying 40 times forward earnings but again 40 times forward earnings for that big of a growth profile. 50% compounded growth probably is very reasonable especially because there's actually margin expansion happening here. Broadcom has some things or margins may not expand as much but at Marll they are going to keep expanding. You're getting 35 EDA today to maybe about 40 in the next two to three years. So you're going to get that uh level up in the EPS growth rate as well. To me this is a really cheap stock. The estimates keep moving higher much like you see this chart here with Broadcom. It looks very similar with Marll. This blue line I'm going to show you just keeps on rising while the white line took a big hit but is now rebounding. So, we're seeing a snap back to the fundamental reality of a much more robust earnings growth backdrop for Marbell than there has been in several years. And when we look at the chart, the chart to me is exceptionally attractive because what we're doing here is we're selling off and then we're rebounding. So, we dropped big just below the 100 day moving average, bounced back above it, came back to it, turned it into support. What you have here now is this was lower highs and lower lows. now are getting higher lows and higher highs. This is a major trend reversal all while preserving a very steady upward sloping 200 day moving average. So this is a comp this is a stock rather that is in rebound mode and it is a rebound that I would buy into. When we look at all three of these, do we uh consider the partnerships we they have in terms of upside because you know anthropically anthropic famously famous famously said they have a market cap of around 30 trillion in the future. So do we look at the custom silicon and buy into that more so than the others? Um yeah I think what you do is each one of these companies whether it's Marll or Broadcom um and Qualcomm they have different partnerships with with different companies but a lot of overlapping partnerships too anthropics working with with all of them for example not Qualcomm Anthropics working with uh Broadcom and Marll um so yes you got to look at the partnerships and understand who you're partnered with but for me that's not really the story here because >> the Frontier Labs are and I've said this before they're in the third mile of a marathon and someone takes the lead and then it doesn't last that long and then someone else takes the lead, right? Remember when Gemini 3.0 0 or whatever 3.1 launched and it was awesome and kicked butt and that was the lead and Google was the hottest game in town and then you know chat GBT and uh Anthropic uh punched back and then they now Anthropic is kind of the hottest game in town but OpenAI just launched Astro which is a really good model and video CEO Jensen Wong called it you know the AGI had this here the AGI moment has arrived and so now they're punching back in a big way and so these companies are going to keep switching leadership in this game. And so I'm not going to tie my bull thesis to Marll over Broadcom or Broadcom over Marll because one is partnered with this Frontier Lab, the other one's partnered with that Frontier Lab, and this Frontier Lab is going to be better than that frontier lab. That's not how I look at it. How I look at it is they're all partnering at pretty much all the frontier labs. All these frontier labs are going to have success at various times, but they're going to have a lot of success going forward. and the companies that are helping build that success, supplying components for that success are are going to win. So that's how I'm looking at it more than like they have a partnership with Anthropic, they're more involved with Meta, they're more involved with Google. Like that's not exact. I don't think that's the right way to slice the cake. >> Okay, so uh moving on to the next stock here. Uh we're going to be talking about the space industry. So I want to talk about Helmet Aerospace. They took a hit recently because GE purchased consolidated precision products for around 11.7 billion and you know we are moving forward into the space sector with SpaceX and all the companies along with that. So what what do you make of Halmet specifically Luke? >> Yeah so the the bull thesis on Haltt is their pretty much their gas turbine uh blade and vein casting business. uh they make gas turbines for a lot of rockets or for defense and aerospace industries. Like that's kind of the core there's a lot of different tentacles of the business. That's the core narrative on Wall Street that's been driving the stock higher. And the stock got hit recently. I think about two weeks ago because Elon Musk actually said that SpaceX is going to bring that gas turbine casting business inhouse at a new foundry in Bastrop, Texas. Um now he he had previewed this in February saying that only three companies in the world actually cast these parts. They're massively backlogged with turbine sold out through 2030 and he didn't want to wait around. Uh but now they're actually doing it. So that's that's the threat on how met right now. They had this really powerful business uh with gas turbine casting that is now under threat from one of the largest customers in this space bringing that inhouse. Okay, makes sense. Fair risk. But Elon Musk is famous for saying a lot of things and some of them come true and some of them don't. There are very little details. Details are super light on what the heck this even looks like right there. How much of it are they bringing in house? We don't know. Uh how much are they actually buying? We don't know how big of a customer are they for how much? We don't know. Um they're not that large because it's not disclosed. So the details are just very light and when is this going to happen? Is it happening now? Is it happening, you know, next year? Is it going to happen in five years? Are we going to scale up? Or is this just a test? Like there there are no details around this announcement besides that it is happening. That's not enough to like hang the bear at the hat. Meanwhile, I actually think, let's just say they do move forward and it is a pretty big push. To me, that's actually a bullish validation because what it says is that we are so supply constrained in gas turbine casting technologies that one of the biggest players in the space is trying to make their own. This is exactly what happened in the GPU world, right? Nvidia's GPUs were so supply constrained that the hyperscalers decided you know what we got to start making our own. Now in the long term that may be a risk to Nvidia but it hasn't been a major risk to the stock in the last two years right the custom silicon projects have been going on for three years now over three years really ever since Chad GPT launched these hyperscalers have been trying to build their own custom chips yet during that time Nvidia stock has continued to compound and compound and compound and compound and go up and go up and go up and go up and go up. Point being that while customers bringing things inhouse might be a long-term risk to the longevity of the business, they often are a short-term tailwind by emphasizing the under supplied conditions of the industry and allowing the main supplier in that industry to see tremendous revenue growth alongside tremendous margin expansion and tremendous profit growth and the stock keeps on working. And I think that's exactly what we're going to see with Halmet. When you look at the numbers here on Halmet once my screen loads here, we're looking at and remember the big story is revenue growth alongside margin expansion 23% 14% 11% 11% on the top line over the next four years. What about margins? Gross margins 37 38 38 39. You bet that margin is 32, 33, 34, 36. So big revenue growth, big margin expansion. That's a nice combination for the stock. Recent weakness I think is a buying opportunity. You've got to look at the chart because the chart is important here because the chart has been hit pretty hard. But when we look at the helmet chart, I'm it's weak, but I like what I see. We dropped to the 200 day. We bounced off the 200 day. We're losing the 200 day, but still just give it a little bit of time. I think we will rebound above the 200 day. I don't want to catch the falling knife. We're down 20 bucks today on the day, but I think we do find some support. There's a pretty big shelf right around here around 224, 225. Major low from uh April 2nd was 220. Big highs from January around 225. So, I think we kind of get to those the 220s and that's where we show some support and U-turn and that's bounce by. >> Love it, Luke. All right. Uh so switching gears really quickly uh and still kind of talking about fall catching falling knives. Want to uh start talking about Lululemon. Uh do we think that the bad news in terms of Lululemon has already been priced in? Is it time to buy now? >> No. I hate I hate Lulu. I hate Lululemon. Um I Well, let me say I love Lululemon clothes. That's all I work out in. I I Lululemon shorts, Lululemon tank top, Lululemon shirts, great clothes. But I mean, look at the stock, dude. This is This is all This is so ugly. Like, and there's no sign of it. It's not like it's ugly. And oh, maybe it's showing some signs of life. No, it's ugly and getting uglier. We just had earnings, they were awful. Revenue was down 4%, down 5% constant currency. Comps were down 10%. A 10% drop in comps in retail is like oh right like that's bad. That that's awful. Uh margins are getting hit. EPS is down. Uh you had the AIPA uh tariff refunds that kind of helped but you got to strip that out. Um underlying EPS was down like 30 34 I think 34% uh year-over-year. Uh it it's not pretty, man. It's not pretty at all. Uh SGNA deleveraged by about 400 basis points. So what is going on? Well, Aloe Yoga is going on. Um Built is going on. This is actually a built shirt. Um BYT is the brand. Uh Gym Shark is going on. I don't think Athleisure is dead at all, but I just think Lululemon is struggling with competition. I mean, when you look at Nike, they're they're down 80%, too. You look at Adidas, they're down uh 55 or 60%. Um on footwear, they're down a whole bunch, too. Uh Dick Sporting Goods is is down a whole bunch. And so, I just think the space is getting really really crowded. And people are shifting away from Lululemon towards towards these kind of upand cominging social media influencer driven brands. And that's that's where the demand is right now. Now, the demand could eventually come back to Lulu. They get some assortments, right? Lahy do. But you gota I mean the brand's damaged. It's going to take some time. Eventually this probably will become a great buying opportunity but just not here, not now. A lot of people said it was a great buying opportunity at 250. It wasn't. They said it was a great buying opportunity at 150. It wasn't. Uh and now they're saying it's a good buying opportunity at 100 and and it's not. Um this probably goes a lot lower before the turnaround does emerge. So I I say stay away, avoid this one. >> Gotcha. Now with Nike down so much as well, are should we have our eyes on new and up and cominging retail stocks or should we just be avoiding retail entirely for the foreseeable future? >> They're all private, man. So here's the problem with retail these days. Little rant, be prepared these days is um well, it's actually not a problem. The problem with investing in retail, I actually think it's a good thing for the economy and a good thing uh capitalism, a good thing for competition. Uh micro influencers. So, we all know who influencers are, right? The big, you know, they got hundreds of millions of followers or whatever. I don't know how many followers Kim K has and Justin Bieber and those people and Sydney Smitty, whatever. A lot of them. Um big influencers. A lot of people are shying away from big influencers because they, you know, they know they get paid a billion bucks a post and that's why they do. Uh, so what they're going towards now are micro influencers are these smaller people who are like kind of more community oriented like I got 100,000 followers or whatever and you kind of follow those trends. So everything is kind of micro influencer driven. And when you really break it down from a few big influencers pushing a few brands, LeBron James, where is Nike? uh you know lot a lot do um you now have all these tiny micro influencers pushing brand X and brand Y and brand Z and brand A B CDE E FG all 26 letters of the alphabet, right? Like you have so many different micros micro influencers driving so many different micro brands that you are taking, you know, $100 flows into Nike or $100 flows into Lululemon and now it's $10 to Built and $10 to Gym Shark and $10 to this and $10 to $10 to Alo Yoga. And so now it just spreads out. Now where the spreading out is happening the smaller companies um it's not happening you know it's not like money's going from Lulu to Nike or from Adidas to Sketchers or from No it's going towards these smaller private brands they're still private so when you ask is there an opportunity in the destruction of blue like where people are still buying athleisure clothes where are they buying them well they're buying them from companies that you can't invest in right now at least with public stock so that's kind of the problem with investing in in retail. And I think the problem with just kind of playing retail stocks at this point in time, Abberrombie and Fitch, look at that stock. That stock's having a day in the sun. It's been really, really strong. I'd be worried about it. I would not be buying Abbercrombie and Fitch on this massive rally because what happened with Lululemon can just as well happen to Abberrombie and Fitch. Like, why can there not be a breaking down towards smaller brands that are up and coming there? I I think they very much can be. Uh Victoria's Secret has had a massive comeback. Appropriate ticker of V Sexy. Very funny ticker. One of the funniest tickers in the game. Um look at that. That that's a beautiful chart, but I would not be buying into that chart because Sydney Sweeny's got this new lingerie brand, right? Like there's all these other lingerie brand skins from Kim K that's going to take share here eventually and inevitably. And when it does, this is going to be a Lululemon situation. So the problem with retail in general is that retail trends now move faster than ever because of the internet, because of social media, and it's so much more democratized because of the rise of micro influencers driving purchasing patterns through these social posts that nothing lasts all that long in retail anymore. And if it's hot, you probably want to fade it. When it's down, maybe you want to buy the dip. Maybe the inverse is true. But I'm not a catching falling knives guy. I'd like to, like I said with Lulu, you want to wait for a sign of a turn around before getting involved there. Um, so that's sort of my mini rant on retail in general right now and why I think you just kind of want to stay away from stocks. >> Understood. Appreciate the insight. We're we're getting a bit longer on this episode. Would you have any closing thoughts, especially regarding uh custom silicon Luke? >> Uh, avoid retail, go long custom silicon, right? I mean, there's there's one trade in the market. It's the AI trade. The AI bifurcation is making a little bit of a comeback and I think it's going to continue making a comeback. That's where the earnings growth is. That's where the spending super cycle is happening. That's where the trend is durable, not fleeting like it has been with Lulu or in retail. Uh you want to stick with that poor AI trade. That's where the money is. Money's coming back into that part of the market right now. Um and I think you want, like I got a really good rebound going on right now. Uh Broadcom's got a really good rebound going on right now. Uh, Qualcomm's got a really good rebound going on right now. So, I I think you want to look at those stocks that were up a bunch, got hit a bunch, and are now rebounding nicely. You want to buy those rebounds. That's the trade. That's where you want to. Excellent. All right, that's a close for this episode. Please make sure to like, comment, subscribe. We'll see you in the next one. Take care.