Although a heavy-construction company, Quanta Services — the IBD Stock of the Day — is arguably an AI stock.
The company builds electric plants and provides other services for the power grid. The need for artificial intelligence computations is fueling a boom in data centers, which require massive amounts of electricity. In addition, many companies are shifting manufacturing into the U.S., resulting in more factory construction.
That investing thesis got momentum late Tuesday, when Oracle said its backlog for AI-related cloud computing capacity is brimming with orders. The tech stock soared 36%.
In the most recent analyst note, Mizuho initiated coverage of Quanta stock last week with a neutral rating and 360 price target.
Quanta is in a good spot to benefit from a grid and electrification supercycle, with secular growth in data centers, grid modernization and clean energy projects, analysts said. Mizuho's total addressable market forecasts are above consensus, TheFly.com quoted the analysts saying. Within the industry, Mizuho sees Quanta as the scale leader with a premium valuation.
Half of the 34 analysts who cover Quanta have buy or outperform recommendations on the AI stock, and most others have hold ratings, FactSet shows. The average price target is 426.96, implying a 7% upside from today's price around 398.
For the full year, analysts polled by FactSet expect Quanta Services earnings to climb 17.8% to $10.57 a share. Sales are estimated to rise 16.8% to $27.654 billion. Analyst estimates have been trending higher.
Quanta has a market cap of more than $59 billion, the highest of 25 stocks in the heavy construction industry group. Last year, 74% of revenue came from utility and power customers. Its other businesses include pipelines and broadband infrastructure.
The Houston-based company has an IBD Composite Rating of 97. That's only the seventh highest in the group, which underscores the strength in the No. 6-ranked industry out of the 197 industry groups IBD tracks.
Wednesday's Stock Of The Day Broke Out On Oracle-Fueled AI Rally
AI Stock Analysis
On Wednesday, PWR stock climbed back above the 50-day moving average on the Oracle-led AI rally. Shares are now clearly above that key level, offering early entry.
Just before that, shares climbed above a trendline on Wednesday as data center-related stocks rallied on Oracle's earnings report.
Meanwhile, PWR stock is forming a flat base with a 424.94 buy point, according to MarketSurge pattern recognition.
The AI stock has a 21-day average true range (ATR) of 2.63%. The average true range is a metric in IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq still in a power trend, investors can buy stocks with ATRs up to 8%, though it's best to avoid concentration in multiple high-octane names.
