Go, Nvidia! These fast-paced artificial intelligence (AI) stocks could more than double in value based on three analysts' expected high price targets.
Over the past year, no investment trend on Wall Street has captured the attention of investors more than artificial intelligence (AI). Utilizing software and systems to replace humans and giving these systems the ability to learn and become more proficient at tasks over time without human intervention, there are use cases for AI in almost every sector and industry. It can be obtained.
Dozens of stocks have benefited from the AI-related investment hype, but none have boosted sales and profits as directly as the semiconductor giants. Nvidia (NVDA -3.87%).
Nvidia takes the AI ​​movement by storm
Nvidia's infrastructure quickly became the “brains” powering the AI-powered data center. The company's A100 and H100 graphics processing units (GPUs) are in high demand, with the latter responsible for training large-scale language models and powering generative AI solutions.
Additionally, Nvidia finds itself in the unenviable situation where demand for GPUs completely exceeds supply. If the supply of a good in demand is limited, the price of that good will rise until demand tapers off. In fiscal year 2024 (ending January 28, 2024), most of Nvidia's 217% revenue growth in its data center division was due to significant increases in the prices of its top-tier GPUs.
There's also a lot of excitement about the introduction of the next generation GPU known as Blackwell. This new GPU promises high-speed computing capabilities that can power everything from generative AI solutions to quantum computing.
The near-term catalyst is tangible for Nvidia, a fact not lost on Wall Street. Rosenblatt analyst Hans Mosesmann has the Street's highest price target for Nvidia at $1,400 per share. If accurate, Mosesman's high price target suggests an upside of nearly 59%.
But there are also a number of headwinds facing NVIDIA. For example, increasing your own production will reduce the GPU shortage and cannibalize your pricing power over time. Moreover, the company's top four customers are all developing their GPUs in-house, which probably means that orders from these “Magnificent Seven” companies are at their peak. .
Despite Mosesman's positive outlook for Nvidia, three other AI stocks have far more upside potential, according to selected Wall Street analysts.
Baidu: Potential upside is 115%
The first AI stock that could effectively double Nvidia's profits is a China-based one, at least based on one Wall Street analyst's predictions. Baidu (Bidu -1.78%). Benchmark analyst Huong Jiang has reiterated his price target for Baidu stock at $210 several times. Based on the April 12 closing price of $97.54, this suggests an upside of up to 115%.
Part of Baidu's appeal from an investment perspective is that it has a fundamental operating model that will continue to generate significant operating cash flow even after the AI ​​bubble bursts. Historically, the next big investment over the past 30 years has all gone through an incipient bubble, and AI is unlikely to break this trend.
Baidu's cash cow division is an Internet search engine. Baidu's search engine grabbed 60.44% market share in China in March, according to GlobalStats data. Looking back over the past nine years, he has largely maintained his 60% to 85% share of domestic internet searches in the world's second-largest economy by gross domestic product (GDP). This makes Baidu a logical choice for sellers who want to get their message in front of consumers.
For the time being, Baidu has two major AI thrusts: the AI ​​cloud segment and the intelligent driving unit. Baidu's AI Cloud is one of China's four largest cloud infrastructure service platforms. This bodes well for continued double-digit growth, as enterprise spending on cloud services is still in its infancy.
Meanwhile, its subsidiary Apollo Go is the most successful self-driving ride-hailing service on the planet. As of January 2, 2024, Apollo Go has taken more than 5 million self-driving rides since its launch.
Baidu is cash-rich (more than $28 billion in cash, cash equivalents, and various investments) and is valued at a historically low 8 times prior-year earnings. Simply put, Jiang's price target is not unreasonable.
Mobileye Global: Signals 127% upside potential
The second artificial intelligence stock that could circle around Nvidia in the returns department is the developer of advanced driver assistance systems (ADAS) and various self-driving solutions. mobileye global (MBLY 2.75%). citygroup Analyst Itai Michaeli expects the company's stock price to reach $72, an increase of 127% from its April 12 closing price.
While a significant portion of Baidu's cash flow will be secured even if the AI ​​bubble bursts, Mobileye is heavily reliant on a strong U.S. economy and AI continuing to drive sales growth.
The health of the automotive market is paramount to the company's success as its ADAS and self-driving solutions power the next generation of vehicles, which become increasingly technology-dependent. Unfortunately for Mobileye Global, demand for electric vehicles (EVs) is waning domestically to the point where they are favored by traditional big players. general motors and ford motor company The production volume of EVs has been reduced.
If there's a silver lining, it's that Mobileye is profitable on a recurring basis and generates ample operating cash flow, ending 2023 with about $1.2 billion in cash and no debt. The company has the capital to continue innovating in any economic climate and benefits from the fact that periods of growth in the U.S. and global economies last significantly longer than contractions and recessions.
Mobileye Global looks like it has a bright future, but it has a long way to go before it can reach a valuation of $72 per share (equivalent to a market cap of $58 billion).
SoundHound AI: Potential upside is 117%
The third artificial intelligence stock with potential to move higher, handily outpacing Nvidia, is a voice recognition software company, based on Wall Street analysts' forecasts. Soundhound AI (Thorn -2.46%). Last month, DA Davidson analyst Gil Luria raised his price target on SoundHound to $9.50 per share, which means the stock is now up 117% as of the end of April 12th. There is.
Excitement surrounding small-cap AI stock SoundHound really started building in mid-February, when a Form 13F was filed with the Securities and Exchange Commission.
Traditionally, the 13F provides a detailed snapshot of what Wall Street's top wealth managers bought and sold in the most recent quarter. But in this case, Nvidia's 13F revealed that it bought 1,730,883 shares of SoundHound AI, worth about $3.67 million, during the quarter ending December. When the backbone of the AI ​​revolution's infrastructure is buying stock in a relatively unknown AI startup, you need to be careful.
A significant number of members of the Magnificent Seven are actively investing in voice-driven AI assistants.This includes: AmazonDear Alexa, applewith Siri alphabetGoogle Assistant, to name a few. During the fourth quarter, SoundHound's sales soared by 80%, and full-year 2023 sales rose 47% to his $45.9 million. SoundHound is still just the tip of the iceberg in terms of voice recognition potential, but its sales growth is expected to grow significantly. To accelerate.
For now, the bulk of SoundHound's revenue can be traced back to royalties it earns when cars, restaurants, and televisions utilize the company's AI-powered voice recognition software. Over time, the company expects subscriptions to become an increasing percentage of sales, likely driving operating margins higher.
However, despite impressive sales growth, SoundHound AI still lost nearly $89 million last year and burned through $68.3 million in cash through its operations. In short, it's far from profitable. Until that happens, Luria's high price target is unlikely to be met.