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Tom Yeung here with your weekly Sunday Digest.
Last week, I shared three AI chip stocks that Louis Navellier’s stock-picking system flagged right as the sector was getting drenched. It’s only been a week, and the trio has already returned 9% on average – roughly what the market makes in a whole year:
- KLA Corp. (KLAC): +8%
- Marvell Technology Inc. (MRVL): +8%
- Lam Research Corp. (LRCX): +10%
Now, I can’t take credit for the timing. It was Louis’ Stock Grader system that told us to look at AI chip makers. I only needed to pick the best of his well-rated stocks.
That’s why his newest portfolio for his members is so valuable. It holds Louis’ 25 highest conviction stocks at any given time. And because the portfolio is updated monthly, it’s able to quickly react to changes in the market — often suggesting sectors like AI chip makers before the market jumps back.
Louis explains his process in his new Fed Warning 2027 presentation. Be sure to catch that here.
The best part is that the system isn’t done with AI infrastructure. In fact, it’s still recommending several AI names in the wake of the turmoil at Nvidia Corp. (NVDA). And so, I have one more pick to add to our three winners to demonstrate why Louis and his system are still so bullish on the AI trade.
No One Left to Enrage
On Thursday, Jensen Huang resigned as Nvidia CEO. Chief Financial Officer Colette Kress will run the company while the board searches for a replacement. Earnings are still scheduled for Tuesday.
Now, Louis remains long-term bullish on Nvidia. The company supplied more than 60% of the world’s AI computing power last quarter, and a new CEO won’t change that overnight.
For the past several years, many of Nvidia’s customers have been wary of shopping anywhere else. In 2024, the CEO of chip startup Groq told The Wall Street Journal that some of Nvidia’s customers were “afraid to even meet with rival AI chipmakers” because they were worried that Nvidia could delay their existing GPU orders. Scott Herkelman, former head of Advanced Micro Devices Inc.’s (AMD) Radeon unit, has gone on the record with similar allegations. The Justice Department opened an investigation into these claims.
Whether or not this was true, the fear of retaliation was real. And the threat kept many buyers from using other companies’ GPUs.
As Bloomberg Intelligence’s Mandeep Singh put it this week, rivals “will probably have a chance to improve their market share,” as Nvidia works through its leadership change.
That could give smaller chipmakers an opening. AI data center firms will find themselves freer to explore products from Nvidia rivals, and my fourth pick is a discounted play on this story…
The Signal Lamp of the AI Revolution
Think of an AI data center as a fleet of thousands of ships. Each ship (or chip) has its own mission (instructions)… its own manpower (compute)… and its own supplies (data). And they all need to communicate with each other to achieve their ultimate goals.
For years, those signals traveled over copper wire. It was like a carrier pigeon of the sailing age: cheap, dependable, and slow.
That worked when chips produced less data and ran ats lower speeds. Over longer distances, today’s chips need something faster. And here, the technology they rely on is fiber optics.It’s like the signal lamps of boats: Messages go out as flashes, and information is shared at the speed of light.
Lumentum Holdings Inc. (LITE) makes the lamps.
Specifically, the Silicon Valley firm works with vendors like Marvell to convert AI chip data into beams of light. Marvell’s optical chips encode the electrical signals, and then Lumentum’s lasers turn them into the light pulses that travel over fiber optic lines.
Right now, there aren’t enough lamps to go around. Lumentum’s lasers are built on indium phosphide, a notoriously hard-to-make material that takes factories years to build. In fact, the company is one of only two Western suppliers producing them in volume; the company is almost sold out through early 2029.
That scarcity is why Lumentum sells to almost every fleet. Nvidia invested $2 billion in the company in March, several customers helped bankroll the company’s expansion, and Marvell wanted so many more of these lasers that they agreed to buy the whole company earlier this month.
The numbers highlight this bottleneck. Last quarter, Lumentum’s revenue rose 137% to $1.26 billion. Gross margins hit 51%, up from 29% just six quarters ago. And analysts are forecasting 59% earnings growth per year through 2029.
Louis’ system agrees with this optimistic outlook. It awards the laser maker a top “A” grade in its quantitative “follow the money” score – a sign that Wall Street is buying the dip.
A Discounted Back Door Into Marvell
On November 2, Lumentum stopped trading like an ordinary ticker after Marvell agreed to acquire the firm in an all-stock deal. If the transaction closes, Lumentum shareholders will receive 4.5 MRVL shares per LITE share.
The market’s response was to ravage both names. MRVL fell 13% on announcement day, and LITE tumbled 19%. As I wrote last week, the companies had been targets of a hedge fund strategy known as “merger arbitrage” where traders will sell one and buy the other to pocket the spread. (The MRVL recommendation last week caught the bottom of this selloff.)
The result is that Lumentum now trades around 30% below its pre-acquisition price. Markets have punished MRVL since the stock price of acquirers usually fall, and LITE has fallen because the two are now linked by this hedge fund strategy.
Lumentum also carries a second, technical discount. Arbitrage traders demand a return for tying up money in their trades, which punishes prices of the acquired firm (in this case, LITE). In addition, some traders are worried that any acquisition premium will vanish if the deal doesn’t go through.
The result is that Lumentum provides a cheap back door into Marvel’s stock:
- You could buy 4.5 shares of Marvell today for roughly $702. That’s Marvell’s $156 market price times 4.5.
- Or you could buy 1 share of Lumentum for $596, and have it eventually convert into 4.5 shares of Marvell.
In addition, Lumentum stands to receive a $3.2 billion breakup fee if the deal falls apart.
I know this sounds crazy. You’re buying $702 worth of Marvell’s stock for $596, with a potential $3.2 billion bonus.
The Loaded Spring
The past several weeks have been brutal for LITE shares. The company has fallen because its fortunes are now tied to Marvel’s stock. I have not recommended LITE to you prior to this point.
But here’s the thing. Louis’ system is pointing to several AI infrastructure firms as the place to invest. And Lumentum is a powerful way to play this bounce.
That’s because if Marvell rises back to its $300 consensus target, every $1 increase in MRVL’s stock price translates to a $4.50 increase in LITE. Merger targets have historically produced abrupt catch-up rallies, and it’s why Louis’ system grades Lumentum so high on its “follow the money” score.
Nvidia’s executive changes also give an unusual opportunity for Marvell to succeed, which will doubly (or 4.5X) benefit Lumentum’s shareholders. The discount was magnified on the way down, which means the premium will get magnified on the way back up.
And so, I am recommending shares of Lumentum at this price. Louis’ Stock Grader still favors a select number of AI infrastructure names, signaling that the smart money knows something about the trade that regular investors do not.
Finding More Picks
Of course, AI chip stocks are not the only ones in Louis’ new portfolio.
There’s another sector that’s even more heavily featured among these 25 stocks. In fact, 16 of them are in this industry.
Now, I guarantee many of you will be surprised by this sector. In fact, one analyst from JPMorgan said at the end of 2025 that, “At the risk of flogging a very dead horse, our message to the market has remained consistent since June 2023: While demand is robust, supply is simply too abundant.” They were decidedly bearish on this “very dead” sector.
But this industry is roaring back. One of its major benchmarks is up 53% for the year, and Louis expects more gains in the near future.
He goes into greater detail about his approach in his new presentation, which you can watch here. Plus, he has two free recommendations, including a stock to buy in this high-potential sector.