1 Cheap Stock to Buy Before AI Drives It Up

Jabil (NYSE: JBL) shares fell after the firm reported its fiscal 2024 second-quarter results on March 15. Last year, Jabil overcame a tough expenditure environment in various geographies and achieved attractive profits to investors. It's still trading at roughly twice the price it began calendar 2023.  

The company's latest guidance fell short of expectations, so investors panicked. Jabil management is convinced that its current difficulties will be temporary. Should investors hoping to purchase a cheap tech stock buy Jabil after its pullback?  

Jabil's outlook is bad, but the future is brilliant. Jabil announced adjusted earnings of $1.68 per share on $6.8 billion in fiscal Q2 ended Feb. 29. While earnings met analysts' estimate, the top line missed Wall Street's $6.89 billion target. Jabil's mobile business divestment during the quarter lowered the top line by 16% from $8.1 billion a year earlier.  

Management predicts $6.5 billion in revenue for the quarter, considerably below the consensus forecast of $7.37 billion. Its fiscal Q3 earnings range midpoint, $1.85 per share, is lower than the consensus projection of $2.12. It expects fiscal-year revenue of $28.5 billion, compared to analyst average of $30.89 billion.  

After selling the mobility division, Jabil predicted $31 billion in fiscal 2024 sales. It cut guidance due to "lower revenue in markets like 5G, renewable energy and digital print". Jabil management expects AI to play a major role in the fiscal 2025 turnaround.  

The rising demand for AI processors benefits Jabil. That's not unexpected since its contract manufacturing business strategy involves designing and producing for chipmakers, cloud computing businesses, and semiconductor capital equipment providers.  

As expected, Jabil expects AI to boost its cloud and networking operations next fiscal year. The company says it is winning new business by helping clients build next-generation AI data centers and that its AI-related revenue could reach $6 billion in fiscal 2025, up 20%. Jabil's fiscal 2025 revenue is expected to reach around $30 billion, thus AI could account for 20% of its top line.  

Overall, the AI business is expected to increase 21% annually through 2030 and earn over $2 trillion in revenue. Thus, AI may benefit Jabil more over time. Investors should buy the company after its recent pullback because it's at an appealing valuation.  

Now, the stock is too inexpensive to ignore. Jabil stock trades at 0.51 times revenue, 21 times trailing profits, and 16 times forecast earnings. The company calls its current fiscal year a "transitional year" due to the sale of its mobility division and focus on streamlining the company, but AI's rising role in its business could surprise investors.  

The 12 analysts covering the stock have a median 12-month share price objective of $150, 12% above present levels. The $160 Street-high price target is 20% higher. Jabil may reach or exceed those aims if AI boosts its growth. Thus, buying this possible AI winner at today's low prices may be a good long-term investment.  

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