1. Nvidia: Dominating the AI Chip Market with Strong Growth Potential
Nvidia, a prominent supplier of chips essential for AI training, has witnessed unparalleled growth. Despite the stock’s impressive performance last year, Rosenblatt Securities analyst Hans Mosesmann envisions Nvidia shares soaring to $1,100 in the next 12 to 18 months, representing a staggering 76% increase from the current price of $625.
As the leader in graphics processing units (GPUs), Nvidia commands up to 95% of the AI chip market. GPUs offer superior speed and energy efficiency compared to central processing units (CPUs). Currently, the stock holds a price-to-earnings (P/E) ratio of 50 based on Wall Street’s earnings forecast for the fiscal year ending in January. However, analysts anticipate a further 67% increase in Nvidia’s earnings per share over the next year.
Nvidia’s exceptional growth has primarily stemmed from major consumer internet giants and cloud service providers. Nevertheless, CEO Jensen Huang foresees a new surge in demand. In the company’s fiscal third-quarter earnings report, Huang highlighted that nations, regional cloud service providers, enterprise software companies, and various industries are embracing AI extensively.
Considering the long-term potential of AI across industries and the gradual upgrade of hardware systems in data centers to handle substantial data workloads, Nvidia’s stock price is very likely to surge further in the next decade.
2. Alphabet (Google): Leveraging AI to Bolster Advertising Business
Alphabet, renowned for its massive investments in AI technology, is well-positioned to capitalize on the rapid adoption of AI. Google, in particular, benefits from AI implementation as it streamlines ad campaign management for companies on platforms like Google Search and YouTube. This aspect enhances the optimism surrounding Alphabet’s future.
The integration of AI technology is poised to drive significant growth in Alphabet’s advertising business, particularly within its Search segment. Search has already contributed a hefty $44 billion in quarterly revenue, with an 11% year-on-year growth in the third quarter of 2023, mainly due to increased retail ad spending. New AI-powered search tools have the potential to bolster user engagement, generate more search queries, and facilitate the display of shoppable ads.
Considering Alphabet’s standing as a leading digital advertiser and its $66 billion in annual profit, the current valuation seems more than justified. Moreover, with AI playing a pivotal role in Google’s operations and its capacity to leverage this technology effectively, investors can expect the company’s stock price to reach new heights in the years to come.