Morningstar

Smart Investor: Undervalued Dividend Raisers, Can the AI Infrastructure Rally Continue, and US Market Outlook

We wrap up our coverage of the markets and the week.

The Intel logo can be seen at the headquarters of the chip company.
Andrej Sokolow/picture alliance via Getty

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This week’s highlights:

The artificial intelligence ride kept on truckin’ this past week, courtesy of more strong earnings reports showing that the infrastructure buildout continues. That helped lift the overall stock market to a fresh record high and a 2.2% gain for the week, courtesy of gains among tech names. Friday’s solid April jobs report only added to the confidence about the outlook.

The performance of some tech names over the past few months has been nothing short of mind-blowing, with stocks doubling and tripling. We took a close look at the five best-performing names we cover, and all are AI infrastructure plays (but not all are tech stocks). See what’s driving their gains and how Morningstar analysts are thinking about the outlook for these stocks.

Looking at the AI labs driving this infrastructure build, there are still plenty of questions about their financials ahead of expected IPOs this year. The big focus is on the quality of their revenues and so-called circular deals. Our colleagues at PitchBook look into why recent OpenAI news is again raising warning flags about these arrangements.

Not all tech stocks are enjoying boom times. Software companies have been in the doghouse amid worries about AI eating away at their businesses. But in a wide-ranging conversation with Leslie Norton, top value fund manager Sarah Ketterer explains why she thinks AI will ultimately benefit some software companies. She highlights three tech stocks in her portfolio.

From Morningstar’s point of view, tech companies are broadly undervalued, despite the recent rally. Morningstar chief US strategist Dave Sekera explains where he sees value across the market. Meanwhile, Morningstar Wealth chief multi-asset strategist Dominic Pappalardo digs into Big Tech’s bond-issuing spree as these firms look to fund their massive AI buildouts, and he explains what he thinks it means for the outlook for bonds.

Lastly, we’ve updated our screen of stocks that raised dividends and are undervalued according to Morningstar analysts. This month, six stocks made the cut. Check out the list here.

As always, be sure to visit our Markets page for our latest coverage and live stock market updates, along with our full weekly calendar of key upcoming data and events.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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