Roughly 30 years ago, the advent and subsequent proliferation of the internet changed the growth trajectory for businesses worldwide. Since then, investors have been patiently waiting for the next game-changing technology to come along and rival what the internet did for corporate America. After an extended wait, artificial intelligence (AI) looks to have answered the call.
The “rise of AI” involves the use of software and systems for tasks that humans would normally handle. Moreover, these AI-driven systems have the capacity to learn and evolve over time without human intervention. This ability to grow more proficient at assigned tasks, as well as potentially learn new skills, gives AI utility across the board.
Last year, the analysts at PwC released a report (Sizing the Prize, PwC’s Artificial Intelligence Study: Exploiting the AI Revolution) that estimated AI would add $15.7 trillion to the global economy via consumption-side benefits and productivity gains come 2030.
With this seemingly limitless addressable market, Wall Street’s financial institutions and analysts have paid close attention to the AI revolution. While most analysts expect meaningful upside to come from cutting-edge AI stocks, certain companies might have an inside track to outsize gains.
According to select Wall Street analysts, three AI stocks offer scorching-hot upside of up to 100% over the next 12 months.
Nvidia: Implied upside of 55%
To no one’s surprise, the first artificial intelligence stock pegged by at least one Wall Street analyst to deliver outsize gains over the next year is leading hardware provider and innovator Nvidia (NASDAQ: NVDA).
Rosenblatt’s Hans Mosesmann increased his and his firm’s price target on Nvidia to $200 from $140 following the company’s recent 10-for-1 stock split. If Mosesmann’s forecast were to prove accurate, the company would have a roughly $5 trillion market cap, and existing shareholders would enjoy an additional 55% upside from where shares closed on July 12.
One aspect of Mosesmann’s optimism has to do with the company being on the pole position when it comes to AI-focused graphics processing units (GPUs). On top of its H100 GPUs currently dominating in AI-accelerated data centers, it plans to introduce its next-generation Blackwell GPU architecture later this year, and its Rubin platform in 2026. There’s a realistic chance that Nvidia’s chips will retain a clear advantage over the competition.
Mosesmann is equally excited about Nvidia’s software. For instance, he believes the company’s CUDA platform — a tool kit used by developers to build large language models — will go hand-in-hand with its hardware to keep businesses under its umbrella of products.
But even though Nvidia’s operating ramp-up has been virtually flawless, expecting close to $1.8 trillion in added upside to the company’s already lofty valuation seems unlikely. History has a knack for spoiling the euphoria that fuels next-big-thing innovations. Over the last 30 years, no new innovation or trend has avoided an early-stage bubble, and artificial intelligence probably isn’t the exception.
Furthermore, there’s a very real scenario in which Nvidia retains its GPU advantages and still loses. In addition to increasing external competition, Nvidia’s top customers by net sales are all developing AI-GPUs for their data centers. Both the scarcity that’s driven the prices of these GPUs into the stratosphere, and the data center space needed to fuel demand for Nvidia’s hardware, are going to diminish.
Mobileye Global: Implied upside of 100%
A second AI stock with mouthwatering upside, at least according to one Wall Street pundit, is Mobileye Global (NASDAQ: MBLY), a developer of advanced driver assistance systems (ADAS) and autonomous driving technologies.
Although analyst Itay Michaeli at Citigroup has reduced his and his company’s price target for Mobileye on a handful of occasions, the current target of $53 represents a cool 100% upside from where shares parked at the end of last week (July 12).
Michaeli’s bullishness primarily has to do with the expectation that advancements in autonomous vehicles (AVs) will — pardon the necessary pun — drive the use of Mobileye’s solutions. This includes its next-generation EyeQ6H platform, which is a centralized chip with three times the power of its predecessor chip and will be tasked with improving ADAS capabilities in AVs.
Michaeli’s research note also points to advancements in Mobileye’s SuperVision, the company’s end-to-end ADAS technology that is enabled by 11 cameras, Road Experience Management-based AV maps, and the company’s next-gen centralized EyeQ chips. SuperVision claims to support Level 2, 3, and 4 autonomous capabilities.
Another factor working in Mobileye’s favor is its pristine balance sheet. This is a company generating positive operating cash flow that, as of March 30, had $1.2 billion in cash and cash equivalents with no debt.
However, reaching $53 per share could prove challenging. Even with next-gen vehicles becoming increasingly reliant on technology, we’ve witnessed tepid demand for electric vehicles (EVs) in recent quarters. With industry stalwarts like General Motors and Ford Motor Company scaling back their investments in EVs, it’s become evident that Mobileye’s growth prospects could ebb and flow as the EV industry and technology matures.
Super Micro Computer: Implied upside of 65%
The third artificial intelligence stock that can offer scorching-hot upside over the next 12 months, based on the prognostication of one Wall Street analyst, is customizable rack server and storage solutions specialist Super Micro Computer (NASDAQ: SMCI).
Despite Supermicro’s stock rallying 220% year to date, and more than 1,000% since the curtain opened on 2023, analyst Ananda Baruah at Loop Capital foresees shares climbing by another 65% over the coming year. Baruah’s price target of $1,500 for Supermicro was released in mid-April.
Baruah’s research report focuses on Super Micro Computer’s positioning within the rapidly growing AI server market, and he expects the company’s customizable solutions to be popular as more and more businesses aim to hop aboard the AI revolution. Based on Wall Street’s consensus revenue estimates of $14.9 billion in 2024 and $24 billion in 2025, Supermicro’s sales are expected to grow by 237% in just a two-year stretch.
But keep in mind that Super Micro Computer’s growth trajectory is heavily reliant on Nvidia. The company’s high-end rack servers incorporate Nvidia’s H100 GPUs — and Nvidia is already working with a sizable backlog for its H100. Supermicro’s growth prospects could dwindle if AI-GPU scarcity persists longer than expected.
History is also doubly concerning when it comes to Super Micro Computer. For one, expectations were high during the early stages of the cloud-computing boom in the mid-2010s. Unfortunately, the company’s growth rate failed to live up to lofty expectations. In other words, we’ve seen Supermicro fail to live up to the hype before.
The other concern echoes what I noted earlier about Nvidia. Every game-changing innovation, technology, and trend since the mid-1990s has needed time to mature, and we’re not there yet with AI. With most businesses lacking a well-defined plan to benefit from artificial intelligence, Supermicro, like Nvidia, would be exposed to significant downside if and when the AI bubble bursts.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends General Motors and Mobileye Global and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks With Scorching-Hot Upside of Up to 100%, According to Select Wall Street Analysts was originally published by The Motley Fool
Source: finance.yahoo.com