Broadcom & NVIDIA: Leading Profitable AI Stocks for September

Investors should search for profitable companies that produce strong returns after covering all operating and non-operating expenditures. Therefore, it’s sensible to invest in a profitable company rather than one that is losing money.   

Here, we use accounting ratios to assess a company’s profitability. Among the several profitability ratios available, we hand-picked the most effective and widely used metrics to evaluate a firm’s bottom-line performance. These ratios show how effectively a company generates profit relative to sales, assets, or equity. 

To that end, two of the best artificial intelligence (AI) stocks, Broadcom Inc. AVGO and NVIDIA Corporation NVDA, have been selected as top profitable companies for the month due to their high net income ratios.

Net Income Ratio

The net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenues. Using the net income ratio, one can determine a firm’s effectiveness in meeting operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.

Screening Parameters Using Research Wizard:

The net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning strategy.

Zacks Rank less than or equal to 3 (Only Zacks’ ‘Strong Buys’, ‘Buys’, and ‘Holds’ are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.)

Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well.

Trailing 12-Month Net Income Ratio Higher than X Industry: A high net income ratio indicates a company’s solid profitability.

Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.

These few parameters have narrowed the universe of more than 7,685 stocks to only 72.

Here are two of the 72 stocks that qualified for the screening:

Broadcom  

Broadcom designs and supplies semiconductor devices and software solutions globally. AVGO recently reported fiscal third-quarter earnings that beat estimates, and has projected robust fiscal fourth-quarter revenues as it continues to capitalize on the boom in generative AI.  

Broadcom’s custom accelerators are in demand among hyperscale customers since they can process large amounts of data rapidly. The 12-month net profit margin of AVGO is 31.6%. It has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

NVIDIA 

Jensen Huang led NVIDIA, recently, saw its top and bottom lines for the fiscal second quarter improve due to the rise in sales of data center graphics processing units (GPUs).  

NVIDIA continues to be a leader in AI hardware, and its CUDA software platform enjoys a significant competitive advantage. Its 12-month net profit margin is 52.4%. NVIDIA has a Zacks Rank #2 (Buy) (read more: NVIDIA Vs. CoreWeave: Which Stock Offers Greater AI Upside?). 

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

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