When the Internet began to become mainstream three decades ago, the development landscape for businesses in the United States and around the world changed completely. After decades of patiently waiting, Wall Street and investors have identified what they believe is the next breakthrough innovation that will change the trajectory of corporate America: artificial intelligence (AI). .
AI relies on software and systems to handle tasks that are normally assigned to humans. What makes this technology so appealing is the ability for AI software and systems to learn and evolve over time without human intervention or oversight. It effectively leverages AI across virtually all sectors and industries.
The remarkable long-term potential of artificial intelligence has not been lost on Wall Street or its analysts. Most price targets from Wall Street pundits and financial institutions point to the upside for the market's leading AI stocks. But that doesn't mean all AI stocks have an equal outlook.
While most pundits expect AI to be hardware kingpin, Nvidia (NASDAQ: NVDA )For value gains over the coming year, select Wall Street analysts' high-water price targets suggest that two other AI stocks could double investors' money over the next 12 months, and Nvidia can be mixed with dust.
Wall Street's leading artificial intelligence stock may be in for a bumpy ride
Of the more than three dozen analysts and pundits who have weighed in on Nvidia, none is more optimistic about its future than Rosenblatt's Hans Moseman.
Following the completion of Nvidia's historic 10-for-1 stock split in early June, Mossman raised his and his firm's price target on the company from $140 to $200 per share. That implies a valuation of about $5 trillion and will result in shares gaining an additional 59 percent from where they ended on July 5.
Mosesmann's lofty price target is based on Nvidia maintaining its dominance in two key aspects of the AI revolution. First is its monopolization of market share for AI-powered graphics processing units (GPUs). TechInsights analysts found that Nvidia was responsible for 3.76 million of the 3.85 million AI-GPUs shipped in 2023. With clear compute advantages and a backlog of next-generation GPU architectures waiting in the wings (Blackwell and Rubin), Mosesmann expects Nvidia to be the go-to hardware supplier for AI-accelerated data centers.
Mosesmann also expects Nvidia to reap the rewards of its CUDA platform, a toolkit developers use to build large language models. The software is perfectly compatible with Nvidia's hardware monopoly to keep AI-focused businesses locked into its ecosystem of products and services.
Despite this great excitement surrounding Nvidia, the road ahead for the company should be significantly longer than it has been over the past 18 months.
For example, competition is increasing at a rapid pace. In addition to fighting off external AI-GPU developers, all four of Nvidia's top customers in terms of net sales are developing AI chips for their own data centers. Even if Nvidia's chips maintain their compute advantage, the sheer presence of additional AI-GPUs will mitigate the decline that sent the price of Nvidia's GPUs into the stratosphere and eroded its margins.
Moreover, the history does not agree with the majority of Wall Street analysts. Every next big innovation, technology, or trend in the past 30 years has worked its way through a bubble, including the advent of the Internet. Since no company has benefited more directly from the rise of AI than Nvidia, it will likely be the most likely to burst, if the AI bubble ever bursts.
While Nvidia's road ahead may be bumpy, a pair of Wall Street analysts believe two other AI stocks could run circles around the artificial intelligence leader in the next year.
Nio: An increase of 116%
The first AI stock capable of leaving Nvidia in the dust, at least based on returns next year, is the China-based electric vehicle (EV) maker. New (NYSE: NIO ). According to Morgan Stanley Nio could reach $10 a share, which would represent a 116% increase from where the shares closed on July 5, analyst Tim Hsiao said.
One of the catalysts fueling Hsiao's optimism is Nio's rapid growth in production and delivery. Specifically, Nio averages around 5,000 orders per week, or in the neighborhood of 20,000 deliveries per month. Going through the worst of the COVID-19 pandemic, which led to a severe lockdown in China, has opened up supply chain kinks that previously prevented Nio from expanding production.
To add to this point, Nio has completed the migration of its fleet to its new NT 2.0 platform. The new platform includes several advanced upgrades to the driver assistance system, including autonomous driving capabilities, which is one aspect of the Nio's AI relationship. Since the transition to NT 2.0, demand for Nio's EVs has increased.
Hsiao and his team are also excited about the launch of Nio's second vehicle brand, known as Onvo, in 2024. While Nio has focused on higher-income consumers with its current lineup, Onvo is a family-oriented battery-EV brand with a lower price tag that could be a more direct competitor to the likes. Tesla In China.
The last piece of the puzzle is that it's swimming in the capital. The company closed the March quarter with approximately $6.3 billion in cash, cash equivalents, and various investments. This gives Nio enough runway to introduce new EVs and increase production.
The caveat to all of the above is that building a car company from the ground up is no easy task. Nio is still burning cash and not particularly close to generating profits. While Onvo and its battery as a service subscription may be able to lift margins, Nio remains a work in progress that will require patience from its shareholders.
Baidu: 102% increase
Another artificial intelligence stock that is expected to double investors' money and leave Nvidia eating its dust is another China-based company, Bedouin (NASDAQ: BIDU ). Baidu has a path to $180 per share — from its closing price on July 5 — a 102% increase over the next 12 months, according to Benchmark analyst Fawn Jiang.
Baidu is known for its market-leading internet search engine. Based on data from GlobalStats, the company's search engine accounted for about 53% of Internet searches in the world's No. 2 economy by gross domestic product in June. With few exceptions, Baidu has controlled 50% to 85% of the monthly share of Internet searches in China since 10 years ago.
As the go-to internet search engine in China, it is often able to command considerable ad pricing power from enterprises. While China's recovery from the COVID-19 pandemic has been more bumpy than initially expected, it's hard to imagine Baidu struggling for long when it maintains a clear gap in advertising.
However, it's Baidu's subsidiary AI operations that could be its biggest growth driver for the rest of the decade (if not beyond). Baidu's AI Cloud is the fourth largest cloud infrastructure service platform in China based on total spend. Enterprise spending on cloud services is in the early stages of growth, and cloud service margins provide more pop than advertising margins for Baidu.
Additionally, Baidu is the parent of Apollo Go, the world's leading autonomous ride-hailing service. As of April 19, Apollo Go had crossed 6 million cumulative rides since its launch.
Like Nio, Baidu is sitting on a substantial trove of available capital. It ended the first quarter with approximately $26 billion in cash, cash equivalents, and various investments. Given Baidu's forward price-to-earnings ratio of just 7.5, the risk-versus-reward profile for the company would certainly be upside down.
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Sean Williams has positions in Bedouin. The Motley Fool has positions in and recommends Baidu, Nvidia and Tesla. The Motley Fool has a Disclosure Policy.
Forget Nvidia: These 2 artificial intelligence (AI) stocks are expected to more than double investors' money, according to select Wall Street analysts Originally published by The Motley Fool