Over the past 30 years, there has always been the next big trend to grab investors’ attention. At the moment, nothing is generating more excitement within the investment community than the artificial intelligence (AI) revolution.
AI uses software and systems to oversee tasks normally handled by humans. What makes AI special is that it incorporates machine learning. This allows software and systems to evolve and become smarter over time. According to researchers at PwC, artificial intelligence will be applied to virtually every sector and industry and is expected to add more than $15 trillion to global gross domestic product (GDP) by the turn of the decade.
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The astronomical sums of money that come with AI solutions are not lost on Wall Street and its analysts.Most analysts expect AI stocks to continue their upward trend next year, including major mega-cap stocks. Nvidia (NVDA 0.35%).
Nvidia may not offer the highest upside potential among AI stocks
According to Loop Capital analyst Ananda Barua, NVIDIA’s stock price could soar to $1,200, which would represent a 52% increase in the stock price from its closing price on February 23, 2024. This could effectively increase the market cap to $1 trillion, putting NVIDIA on top. The world’s largest listed company.
Baruah’s optimism likely stems from Nvidia’s dominant position as the infrastructure backbone of the AI movement. The company’s A100 and H100 graphics processing units (GPUs) could account for 90% of the share of GPUs used in high-computing data centers by 2024. Demand clearly exceeds supply, and Nvidia benefits from short-term pricing. That power allowed it to easily beat Wall Street’s consensus sales and profit forecasts.
But Nvidia will also face a number of headwinds this year. As recently outlined, the company will contend with increasing external competition from companies such as: Advanced Micro Devices and intel, as well as internal competition. His two biggest customers, Nvidia meta platform and microsoftis developing a unique data center chip that utilizes AI.
Additionally, as production of A100 and H100 GPUs ramps up, there’s a real possibility that Nvidia cannibalizes its own gross margins. If the GPU shortage eases, it could reverse the pricing power that has primarily driven Nvidia’s data center sales.
Loop Capital’s Baruah believes Nvidia stock could deliver a 52% return from last week’s closing price, but three other AI stocks are higher, according to selected Wall Street analysts. There is room for prices to rise.
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Baidu: Potential upside is 89%
First artificial intelligence stock that at least one Wall Street analyst believes could rise above Nvidia is based in China Baidu (Bidu -0.69%). According to Benchmark’s Huong Jiang, Baidu stock could reach $210 per share, which would represent an 89% increase compared to its closing price on February 23.
Most investors are familiar with Baidu because it is the dominant internet search engine in China. As of January, Baidu accounted for 61% of internet searches in the world’s second-largest economy by GDP. With few exceptions, Baidu has accounted for 60% to 85% of China’s Internet search share in the past nine years. This makes the company a natural go-to for advertisers and helps it maintain strong advertising pricing power.
However, Baidu’s future depends heavily on the success of AI. The company’s AI Cloud and the world’s leading self-driving ride-hailing service, Apollo Go, have consistently delivered superior growth rates compared to the company’s underlying Internet search segment. In particular, generative AI solutions offer companies the means to tailor advertising to the wants and needs of specific users.
Mr. Jiang’s price target of $210 is not outrageous. Given Baidu’s historic double-digit growth rate, $27.8 billion in cash, cash equivalents, and restricted cash (as of September 30), and a significantly lower prior-year earnings multiple of just 10x, non-online marketing Earnings could realistically be boosted. Baidu stock price is $210.
Mobileye Global: Signals 203% upside potential
Another AI stock that investors may have completely forgotten about is Nvidia. mobileye global (MBLY 2.70%)is a developer of advanced driver assistance systems (ADAS) and autonomous driving solutions.Analyst Itai Michaeli citygroup The company believes Mobileye Global stock could more than triple to $72 a share.
Next-generation vehicles incorporate unprecedented technology. Mobileye’s SuperVision is today’s most advanced ADAS product. Although SuperVision still requires full driver attention (and potential intervention), it is a hands-off solution that can handle lane changes, acceleration and deceleration, and provide evasive maneuver assistance and point-to-point automated navigation for self-driving cars. . vehicle. As cars become “smarter”, Mobileye’s solutions are sure to become even more popular.
Another thing that worked in Mobileye’s favor was that the company was profitable under generally accepted accounting principles (GAAP) in the fourth quarter. Mobileye has achieved future orders of $7.4 billion in 2023 and has cash and cash equivalents of $1.21 billion as of December 30, 2023. Not only has the company had little trouble maintaining its double-digit growth rate over the long term; The United States has been in a period of economic growth and has the capital it needs to continue to innovate.
Mobileye Global is undoubtedly developing exciting technology, and major shareholder Intel will be excited to see its stock price rise, but a recession could materialize in the not-too-distant future. This makes it difficult to achieve the $72 price target in 2024.
Tesla: 64% upside potential
The third AI stock with even more upside than NVIDIA, at least based on one Wall Street analyst’s predictions, is an electric vehicle (EV) maker. tesla (TSLA 3.87%). Wedbush Securities analyst Dan Ives recently reiterated his view that Tesla stock could reach $315 per share, which would be a 64% increase from its Feb. 23 closing price. Ta.
AI solutions are essential to the EVs Tesla sells and leases. The company’s Autopilot software uses cameras, sensors and other solutions to extract data from the car’s surroundings for instant driving decisions. Tesla has leveraged its first-mover advantage in the EV field to become one of North America’s leading EV manufacturers. The company achieved its fourth consecutive year of GAAP profit while producing just under 1.85 million EVs in 2023.
But unlike Baidu, which has a very reasonably high price target, Dan Ives’ lofty price target looks unattainable given Tesla’s growing headwinds. The company has cut prices on Model 3, S, X, and Y more than six times since early 2023. These price cuts are in response to weaker EV demand, increased competition, and rising inventory levels as Tesla ramps up production. . Tesla sells more vehicles, but its operating margin has more than halved to 8.2% in just over a year.
Tesla’s ambitions to become more than just a car company also suffered a setback. Growth in the company’s energy generation and storage division has stalled on a quarterly basis, and gross margins in the services division fell below 3% in the fourth quarter. Tesla relies almost entirely on EV sales and leases to generate profits. That’s a problem, considering Tesla trades at more than 60 times consensus 2024 earnings in an industry known for single-digit price-to-earnings ratios.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. She is an advertising partner of Citigroup and the Motley Fool’s Ascent. Sean Williams has held positions at Baidu, Intel, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Baidu, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and his Mobileye Global and recommends the following options: Long January 2023 $57.50 Calls on Intel, Long January 2025 $45 Calls on Intel, Long January 2026 $395 Calls on Microsoft, Short February 2024 $47 Calls on Intel, and Long January 2026 Calls on Intel. Short calls to Microsoft cost $405. The Motley Fool has a disclosure policy.
