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For more than a year, no investment trend on Wall Street has captured investors’ attention as much as synthetic intelligence (AI). Using software and systems instead of humans and giving those systems the ability to be informed over time without human intervention for those most talented in their responsibilities provides AI with a use case in almost any and every sector and industry.
While dozens of stocks have benefited from AI-related investment euphoria, no company has enjoyed a more direct increase in sales and profits than semiconductor giant Nvidia (NVDA 3. 46%).
Nvidia’s infrastructure temporarily holds the “brain” that powers AI-accelerated knowledge centers. The company’s A100 and H100 graphics processing suites (GPUs) are in the highest demand, with the latter being blamed for education giant language models and powering generative AI solutions.
In addition, Nvidia is in an enviable position where demand for its GPUs has completely outstripped the source. When the source of a smart demand is limited, the value of that intelligence increases until the demand decreases. In fiscal 2024 (ended January 28, 2024), the peak of the 217% sales growth identified by Nvidia in its mid-data segment is the result of particularly high prices on its top-tier GPUs.
The arrival of its next-generation GPU, known as Blackwell, is also generating a lot of excitement. This new GPU promises accelerated computing features that can force everything from generative AI responses to quantum computing.
The short-term catalysts for Nvidia have been tangible, and that’s not a lost fact on Wall Street. Rosenblatt analyst Hans Mosesmann maintains Nvidia’s highest value target at $1,400 per share. If accurate, Mosesmann’s ambitious value target implies an advantage of nearly 59%.
But Nvidia also faces a number of obstacles. For example, expanding your own production will reduce GPU shortages and cannibalize your pricing force over time. What’s more, its top four consumers are creating their own GPUs in-house, which means we’re seeing an increase in orders for those “Magnificent Seven. “
Despite Mosesmann’s optimistic forecast for Nvidia, three other AI stocks offer significantly higher growth potential, according to some Wall Street analysts.
The first AI stock that could double Nvidia’s profitability, at least according to a Wall Street analyst’s forecast, is China’s Baidu (BIDU 1. 49%). Benchmark analyst Fawne Jiang has repeatedly reiterated his $210 value target for Baidu shares. . Based on its final value of $97. 54 on April 12, this suggests that a drop of up to 115% is expected.
One of Baidu’s attractions from an investment standpoint is that it has a basic operating style that would continue to generate abundant operating money if AI bubbles burst. Historically speaking, all of the largest investments in the last 30 years have gone through a bubble in the past.
Baidu’s Cash Cows segment is its search engine. In March, Baidu’s search engine gobbled up 60. 44% of the market in China, according to data from GlobalStats. Over the past nine years, the percentage of national searches has most commonly been between 60 and 85 percent in the world’s second-largest economy in terms of gross domestic product. This makes Baidu the logical choice for marketers who need to get their message across to consumers.
At the moment, Baidu has two key AI drivers: its AI cloud segment and its intelligent drive unit. Baidu’s AI Cloud is one of the 4 largest cloud infrastructure service platforms in China. Given that enterprise cloud spending is still in its infancy, this bodes well for sustained double-digit growth.
Meanwhile, subsidiary Apollo Go is the most successful autonomous ride-sharing service on the planet. As of January 2, 2024, Apollo Go had surpassed five million autonomous rides since its inception.
Baidu is flush with money (more than $28 billion in money, money and investment equivalents) and its cost is traditionally cheap, 8 times higher than next year’s profits. In short, Jiang’s value target is not far-fetched.
A second inventory of synthetic intelligence that could circulate through Nvidia in the returns sector is the developer of complex driver assistance systems (ADAS) and autonomous driving solutions, Mobileye Global (MBLY -1. 54%). Citigroup analyst Itay Michaeli estimates that the company’s inventories will reach $72, which would result in a 127% increase since the inventory closed on April 12.
While a significant percentage of Baidu’s money is protected in case an AI bubble bursts, Mobileye relies heavily on a strong U. S. economy and the AI process to drive sales growth.
As the company’s autonomous driving and ADAS solutions make their way into next-generation cars and those cars rely on technology, automotive market fitness is critical to their success. Unfortunately for Mobileye Global, demand for electric cars (EVs) is fading nationally, to the point where historic titans like General Motors and Ford Motor Company have scaled back their EV production ramps.
If there are positives to be found, it’s that Mobileye is successful on a recurring basis, generates significant operating cash flow, and ended 2023 with approximately $1. 2 billion in cash and no debt. It has the capital to continue innovating regardless of the economic situation. It benefits from the fact that periods of expansion in the United States and the global economy last much longer than contractions and recessions.
While Mobileye Global appears to have a bright future, it still has a long way to go to achieve a valuation of $72 per share, which would constitute a market capitalization of $58 billion.
The third AI stock capable of overtaking Nvidia, according to a Wall Street analyst’s projections, is the popular software company SoundHound AI (SOUN 0. 22%). Davidson analyst Gil Luria raised his price target on SoundHound to $9. 50 per share, currently implying a 117% increase, at the company’s share close on April 12.
The excitement around small-cap AI stocks SoundHound began in mid-February, when Form 13F was filed with the Securities and Exchange Commission.
Traditionally, a 13F provides a detailed review of what Wall Street’s most sensible fund managers bought and sold in the last quarter. But in this case, Nvidia’s 13F revealed that it bought 1,730,883 shares of SoundHound AI, worth around $3. 67 million, in the quarter ended. in December. When the core infrastructure of the AI revolution buys shares of an unknown newcomer to AI, you’re paying attention!
A savvy number of Magnificent Seven members have aggressively invested in voice-activated AI assistants. This includes Amazon’s Alexa, Apple’s Siri, and Alphabet’s Google Assistant, to name a few. During the fourth quarter, SoundHound’s sales increased by 80%, with year-over-year growth earnings set to increase 47% to $45. 9 million in 2023. Although SoundHound is still scratching the tip of the iceberg in terms of the potential popularity of speeches, it turns out that its sales expansion continues to accelerate.
Currently, the largest percentage of SoundHound’s profits comes from royalties collected when a vehicle, restaurant, or TV uses its AI-powered voice popularity software. Over time, the company expects subscriptions to account for a larger percentage of its sales and maximize likely increasing its operating margin.
But despite its impressive sales growth, SoundHound AI lost about $89 million last year and spent $68. 3 million in money through its operations. In short, it’s far from profitable. Until that happens, Luria’s higher-value goal is unlikely to be reached.
Alphabet’s Suzanne Frey is a member of the board of directors of The Motley Fool. Citigroup is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Sean Williams holds positions at Alphabet, Amazon, and Baidu. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Baidu, and Nvidia. The Motley Fool recommends General Motors and Mobileye Global and recommends the following options: $25 long calls in January 2025 at General Motors. The Motley Fool has a disclosure policy.
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