The past year has been marked by the coming of age of artificial intelligence (AI). The ability of generative AI to generate original content and streamline time-consuming processes represents a potential shift in the way businesses operate. The opportunity to take advantage of the productivity gains made possible by these next-generation algorithms has many companies scrambling to determine how best to integrate them into their daily operations.
Despite outperforming the market in 2023, some market observers believe there is more to come for AI stocks. In fact, two Wall Street analysts suggest that two of them still have upside potential of 63% and 70% over the coming year.
#1 Artificial Intelligence Buy: Nvidia – implied increase of 63%
If there is a stock that illustrates the potential represented by recent advances in AI, Nvidia (NASDAQ:NVDA) would certainly be in the running. Its graphics processing units (GPUs) use parallel processing, the ability to process a multitude of mathematical calculations simultaneously by dividing data into smaller chunks to make them more manageable. This not only revolutionized gaming, but also enabled the evolution of AI.
During the company’s fiscal 2024 (ended January 28), Nvidia generated revenue that grew 126% year over year to approximately $61 billion, while its Diluted earnings per share (EPS) soared 586% to $11.93. For its first fiscal quarter 2025 (ending April 30), Nvidia is targeting record revenue of $24 billion, an increase of 234% year-over-year. Management has left no doubt that the growing demand for Generative AI was behind the surge.
Despite the stock’s 488% rise since the start of 2023 (as of this writing), Rosenblatt analyst Hans Mosesmann, the self-described “most bullish Nvidia analyst,” has a Buy rating and a market-high price target of $1,400. action. This represents a 63% upside potential from Monday’s closing price. Mosesmann said: “The move toward accelerated computing, away from general computing, is reaching a critical point, and a revolutionary new application, generative AI, is creating an entirely new industry. »
The analyst is not the only one adopting a bullish stance. Of the 56 analysts who issued an opinion in March, 52 rated the stock a Buy or Strong Buy, and not one recommended sale. This is surprising, given that Wall Street never agrees on anything.
Nvidia stock currently sells for 34 times forward earnings. Although this represents a premium compared to the multiple of 27 for the S&P500the company’s triple-digit growth and strong tailwinds suggest it deserves a premium.
Artificial intelligence purchase #2: Super Micro Computer – 70% implied increase
While Nvidia provides the GPUs needed to train and run AI systems, Super microcomputer (NASDAQ:SMCI)also known as Supermicro, integrates these and other cutting-edge chips into high-end servers specifically designed to withstand the rigors of AI processing.
The company’s focus on energy efficiency is well documented, as is its basic architecture. Supermicro offers a variety of free-air, liquid, and traditional air cooling technologies, providing AI-centric server solutions for all budgets and technology levels.
During the company’s second quarter of fiscal 2024, Supermicro generated revenue that increased 103% year-over-year to approximately $3.7 billion, while its EPS adjusted jumped 71% to $5.59. And management believes the company’s growth will continue to accelerate. Supermicro projects third-quarter revenue of $3.9 billion and EPS of $5.22 at the midpoint of its guidance, which would represent year-over-year growth of 205% and 220%, respectively.
The stock is up 975% since the start of 2023, but some believe significant upside potential remains. Loop Capital analyst Ananda Baruah has a Buy rating and a high price target of $1,500 on the stock. This represents a 70% upside potential from Tuesday’s closing price.
Baruah is increasingly confident in Supermicro’s position in the generative AI server space and its leadership in the face of increasing complexity and scale in the server industry. In addition, he believes that the company can achieve a turnover execution rate of $40 billion by the end of its 2026 fiscal year. For context, that revolves around the $7.1 billion it generated in its 2023 fiscal year (ended June 30).
The analyst is not the only one adopting a bullish stance. Of the 15 analysts who covered the stock in March, 11 rated it a buy or strong buy, and none recommended sale. Supermicro stock is also attractively priced, currently selling at 3x forward sales.
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Danny Vena holds positions at Nvidia and Super Micro Computer. The Motley Fool Ranks and Recommends Nvidia. The Motley Fool has a disclosure policy.
2 Superb Artificial Intelligence (AI) Growth Stocks to Buy Before They Skyrocket 63% and 70%, According to Some Wall Street Analysts was originally published by The Motley Fool
