Daily Stock Pick for August 25, 2023

It was not to be.

Markets opened strong yesterday – gapping up thanks to Nvidia’s blowout earnings report.

But that rally quickly fizzled out, and the bears took over, causing indexes to actually close significantly lower for the day. There were big intraday moves.

Most AI stocks (except Nvidia, of course) lost a lot of ground.

Yet, Nvidia’s earnings is proof that AI is indeed here to stay – that it’ll be a secular trend that could help power the market for years to come.

Obviously, there’s a contradiction there – but it’s one we can turn into an opportunity.

Because if we make the right bets on AI stocks with real potential instead of manufactured hype – and have the patience to hold our positions a little longer…

I believe we can come out ahead.

That’s why for today’s daily stock pick, I’d like to spotlight a profitable company that has been called “the enabler of generative AI”.

The company has just said that AI has contributed half a billion dollars to revenue in the past year – a number that is only set to grow. It also just beat earnings expectations for both the top and bottom line.

Synopsys, Inc. (SNPS)

Synopsys makes software for designing semiconductors. And while it’s far from a household name, it’s actually a $66 billion company that’s been around since 1986 and IPO’ed in 1992.

Its main connection to AI is indirect, but obvious. Synopsys builds the technological infrastructure that allows AI chips to be built. In its most recent earnings call, the company revealed that AI chips already account for over $500 million in annual revenue (roughly 10% of the current total) – a number that is only expected to increase.

On top of that, the company is also already using AI in its chip design process, and is about to add generative AI to the mix as well. This should help increase its productivity and thus its margins.

Synopsys has demonstrated excellent financial discipline and execution, consistently posting strong revenue growth and even stronger earnings growth. It also has negligible debt, giving it the flexibility to lever up should it need to.

As for its stock price, it’s up 36% on the year – with its all-time high being just a few months ago back in May. The stock has pulled back since then, giving buyers a chance of getting in at a better price on this AI-enabling stock.

To your wealth,
Felix @ Ace of Investing