Five AI Stocks Trading Below Growth Forecasts During Rate Hikes

FinanceAI Stocks Are on Sale. It Won’t Last

TL;DR

Chip stocks have fallen 9% despite S&P 500 profits growing 10% since June, creating buying opportunities in AI infrastructure companies with expected 15%+ profit growth that analysts have upgraded since July.

Key Takeaways

1Verdive's profit per share jumped 60% last quarter while stock fell 31% since July; expected to grow 36% next year with new upgrade cycle launching by end of 2024.
2Invent sales jumped 53% last quarter with data center business growing from 12% to 60% of revenue; analysts raised 2025 profit forecasts 14% while stock fell 9% over same period.
3KLA set $1 billion backlog record with one packaging customer alone ordering $200 million of inspection tools; analysts raised next year profit forecast 18% since July, stock down 26%.
4Comfort Systems grew sales 50% last quarter with backlog up 73% to $14 billion; tech customers increased from 43% to 60% of revenue as data center builds accelerate.
5InoData recorded 58% sales jump last quarter with two customers representing 71% of business; company's independence from tech giants protects it from Scale AI's conflict-of-interest problem with Meta.
6S&P 500 profits expected to grow only 3% by mid-2025 after current slowdown; historically market handles this decline, with real damage coming only when profits actually fall.
772 S&P 500 companies raised profit guidance to Wall Street since end of June, the most since tracking began in 2006; three AI hardware stocks swung 2.4-3% on days when 10-year rate jumped 1%.

Notable Quotes

“Interest rates are to asset prices, you know, sort of like gravity is to the apple. When there are very low interest rates, there's a very small gravitational pull.”
— Brian Cohen

“Even the bubble crowd sees this. Steve Eisman, the investor famous from the Big Short, has been warning that this AI boom could end badly. But listen to what he owns. Nvidia, God bless them, and I own the stock.”
— Brian Cohen

“What happens when those profits stop growing? The slowdown is already baked into the forecast with profit growth expected to fall to around 3% by the middle of next year.”
— Brian Cohen

“Gravity only really wins when profits actually start falling. And right now analysts are raising their numbers on all five of these companies.”
— Brian Cohen

Chapters

1. Market Context: Rising Rates Meet Growing Profits

US 10-year yield hits highest since 2002; S&P 500 slipped 1% but chip stocks fell 9% with all five featured stocks down over 9%. Since June, expected S&P 500 profits up 10% while prices only up 3.5%, creating a compression between rates (gravity) and earnings growth.

2. Stock Selection Filter and Investment Approach

Used three-part filter: companies must have 15%+ expected profit growth next year, analysts must have raised forecasts since July, and stock price must lag those higher forecasts. Brian Cohen uses a signal ladder system and emphasizes buying in stages while keeping riskiest positions extremely small.

3. Verdive: AI Data Center Cooling and Power Infrastructure

Makes radiators, fuel lines, and cooling gear for AI chips; profit per share up 60% last quarter with 36% expected growth, but stock down 31% since July. $1.4 billion acquisition of power company positions Verdive for upgrade cycle when Nvidia changes rack power design starting 2027. PEG ratio around 1.0 (fair price for growth).

4. Invent: Data Center Power and Liquid Cooling Systems

Sales jumped 53% last quarter; data center business grew from 12% to 60% of revenue; now expects to sell over $2 billion of data center gear this year, more than double last year. Stock down 9% despite 27% expected profit growth; bought competitor for $1.75 billion at 6% interest, creating debt burden in higher rate environment.

5. KLA: AI Chip Quality Control and Inspection Tools

Sales record up 35% last quarter with backlog topping $1 billion for first time; one packaging customer ordered $200 million with most not shipping until 2027. 80% expected growth in stacking and packaging inspection business; 44% overall profit growth puts PEG at 0.6 (discount to growth), but stock down 26% since July due to Chinese memory maker competition.

6. Comfort Systems USA: Data Center Construction and Modular Building

Sales grew 50% last quarter with profit per share nearly doubling; backlog up 73% to $14 billion with tech customers increasing from 43% to 60% of revenue. 23% expected profit growth with PEG of 1.3; stock down 16% in one month but beat Wall Street estimates four quarters in a row; risk is fixed-price contracts exposed to labor/material cost increases.

7. InoData: AI Model Training Data and Testing Services

Sales jumped 58% last quarter; writes practice problems and grades AI model answers for major tech companies; 27% expected profit growth but stock down 15% since July and trading at half June peak. Building motion capture lab for robots and testing AI for government; biggest risk is concentration with two customers comprising 71% of sales. New CEO as of September with $300 million stock offering plan limiting rallies.

8. Why These Stocks Are on Sale and What Comes Next

Higher interest rates create gravitational pull on stock prices, but profits are fighting back with S&P 500 seeing 10% profit growth. All five companies have raised analyst forecasts since July; earnings reports coming in next few weeks will reveal if growth engines still running. Historical data shows market handles profit slowdown to 3% but real damage comes when profits fall.

Key People & Entities

Brian Cohen: Former executive who retired at 46 after making billions for companies like Target and Amazon; uses same investment skills for personal portfolio
Steve Eisman: Famous investor featured in 'The Big Short'; warns AI boom could end badly but owns Nvidia stock
Warren Buffett: Investor whose quote about interest rates as gravity frames the video's central economic thesis
Nvidia: AI chip manufacturer; changing power delivery into racks starting 2027, creating upgrade cycle for Verdive
Verdive: Manufacturer of cooling and power infrastructure for AI data centers; acquired power company for $1.4 billion
Invent: Provider of data center power and liquid cooling systems; grew data center business from 12% to 60% of revenue
KLA: Manufacturer of AI chip inspection and quality control tools; backlog topped $1 billion for first time
Comfort Systems USA: Data center construction company building modular facility sections; backlog up 73% to $14 billion

Glossary

PEG ratio: Price-to-Earnings-to-Growth ratio; stock price divided by expected profit growth rate; values below 1.0 suggest stock is trading at discount to growth, above 1.0 suggests premium
Signal ladder: Custom investment system using price levels to indicate buy signals; stocks falling below bottom rung require reassessment of fundamentals before purchasing
Backlog: Amount of future work or orders customers have already committed to; used to assess company's forward visibility and demand strength
Dollar cost averaging: Investment strategy of buying a fixed dollar amount of an asset at regular intervals regardless of price, reducing timing risk
Coiled spring: Technical setup where stock price compresses below moving averages while fundamentals strengthen, suggesting potential for sharp upward move once pressure releases
50-day and 200-day averages: Moving average prices over 50 and 200 trading days; used to identify short-term and long-term price trends; when price falls below both, spring becomes tighter

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