Daily Stock Pick for Oct 6, 2023

The market price action tells me the market is due for a short-term bounce.

The S&P 500’s 200-day moving average – which reveals the long-term trend…

Is intersecting with the 4,200 support level, formed by the February 2023 highs, and was a key breakout level at the beginning of June.

So with that in mind, let’s end the trading week by looking at an AI stock that has largely defied the pullback and could be a good buy right now.

The reason this AI stock was able to largely escape the pullback was because of a strong second-quarter earnings report back in late July…

Which gave the stock a strong positive catalyst that managed to “cancel” the effect of the broader pullback.

The question then is – why only highlight this stock now?

The reason is a technical one.

You see, the stock just went above its 50-day moving average – which indicates the medium-term price trend.

If said moving average can hold as support, that could make this AI stock a prime beneficiary of the coming market bounce.

Arista Networks, Inc. (ANET)

ANET makes computer network switches that improve the speed of information transfer between computer servers in data centers. Specifically, it focuses on what are known as “hyperscale” data centers – absolutely massive facilities with a minimum of 5,000 servers and 10,000 square feet of space.

The AI connection is that, as AI adoption increases, so will the workloads at these hyperscale data centers. And ANET’s industry-leading network switches will be key in making these data centers more efficient to support these workloads.

In its second-quarter earnings report, ANET reported revenue 39% higher compared to the prior year and 64% higher net income. All these were far ahead of consensus estimates – as was its guidance for the rest of the year. So the AI thesis has been playing out so far.

ANET stock is up 55% for the year. And as I said, it just recovered its 50-day moving average, which can serve as a new support level – especially with the market likely due for a short-term bounce.

That said, this is still pretty volatile stock, so adjust your position size accordingly. Have a good weekend.

To your wealth,
Felix @ Ace of Investing