Business Insider Citrini Research says AI volatility has explanations beyond Chinese competition and geopolitics, and three stocks will be winners in the next phase.
- The AI trade has been volatile, but Citrini Research says some stocks are still overlooked by the market.
- The research firm flagged under-the-radar names it sees as future AI winners.
Citrini Research went viral this year for it's report on the potentially dire effects of artificial intelligence on the labor market, but it's not quite as bearish on the market's AI trade.
The research firm recently shared an updated outlook on AI stocks in light of the recent tech selloff, highlighting why current narratives are failing to accurately explain it, from Chinese competition and lower-cost large language models to ongoing geopolitical shocks.
"Rather, it's more likely that a blistering, leverage-fueled, breakout of the most crowded expressions of the AI and other thematic trades creates its own fragility — the unwind generally mirrors the vigor of the ascent," Citrini wrote in a note published on July 19.
Last month, Citrini published a report on what its analysts see as the best opportunities outside the AI trade. Now the firm's perspective has shifted; there are still opportunities for investors, but they likely lie with the AI names that might not be in focus or don't fall squarely within the theme.
Qualcomm, GitLab, and **Meta **are among the most prominent names Citrini flagged as future AI winners.
The firm has highlighted Qualcomm previously as an underrated AI stock with high potential due to its presence in the chip market. The firm is still as bullish, arguing that Qualcomm should be recognized as much more than a chipmaker and could be poised to join the tech sector's hardware giants.
"The major driver is in data center revenue — and while we recognize investor reluctance to underwrite QCOM data center revenues after its failed attempt to enter the market back in 2017 with the Centriq 2400 — there are reasons to take this attempt seriously," Citrini said.
Those reasons include Qualcomm's ability to address major AI bottlenecks, such as using less power, and decreasing reliance on costly high-bandwidth memory. Citrini also highlighted its clear product roadmap as a reason to be optimistic about its growth prospects.
The firm also sees a major shift ahead for software. Despite ongoing fears that many software makers won't survive the rise of AI, Citrini analysts say that some companies will be key winners as AI-powered software deployment takes over. GitLab is poised to be a big beneficiary of the trend, the firm said.
"As more software work is delegated to agents, the valuable layer increasingly becomes the one that can map how code, tests, permissions, incidents, and dependencies relate and make that context available at runtime," Citrini added. "GitLab's opportunity is to move from preserving the development record to governing the work performed against it."
Citrini also noted that investors shouldn't rule out Meta Platforms, a Magnificent Seven stock and AI hyperscaler that has underperformed many of its peers over the past year. The company has been criticized for its excessive AI spending, but Citrini argues that big AI capex is a strategic strength.
The firm used an acronym borrowed from high school algebra teachers to illustrate its point — PEMDAS (Please Excuse Meta's Determined AI Spending) — and used a few more algebraic principles to take the example even further.
"Meta has the right order of operations in AI to turn GPUs into revenue more effectively than anyone else," it wrote. "PEMDAS exists because arithmetic punishes the wrong sequence. The META AI bears are subtracting capex first and ignoring the exponents."
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