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Headlines
- Nvidia, Super Micro, and Tesla: Stocks To Watch
- Experts Anticipate Major Advances for Leading AI Companies
Beginning in the mid-1990s, the internet transformed the interactions between consumers and businesses. Though it took time for this innovative technology to become mainstream, the internet eventually propelled Corporate America forward in a significant way.
For three decades, Wall Street has been eagerly anticipating the next technological leap that could have a similar impact on businesses as the internet did in the mid-1990s. After a long wait, artificial intelligence (AI) seems to be the answer. The immense potential of AI lies in its software and systems' ability to learn without human intervention. This machine learning capacity enables AI systems to become more efficient at their tasks or learn entirely new skills over time.
The game-changing potential of AI hasn't gone unnoticed by Wall Street institutions and market pundits. Many experts believe this revolutionary technology will create substantial value but some projections are particularly optimistic.
Based on the forecasts of three Wall Street experts, the following trio of widely owned AI companies could see gains as high as 1,200%.
Nvidia: Projected Increase of 91%
The first AI company that at least one Wall Street expert believes will soar is Nvidia (NASDAQ:NVDA), a leader in data-center hardware.
Despite Nvidia's market value increasing by over $2.2 trillion since the start of 2023, Hans Mosesmann of Rosenblatt Securities believes it could become Wall Street's first $5 trillion company. His $200 price target, set after Nvidia's 10-for-1 forward split, suggests a 91% increase from the $104.75 share price as of August 9.
Mosesmann believes Nvidia will maintain its dominance in AI-graphics processing units (GPUs) used in high-compute data centers. With demand for the company's chips surpassing supply, Nvidia has successfully increased the selling price of its GPUs and improved its adjusted gross margin. Additionally, Mosesmann is excited about Nvidia's CUDA platform, a toolkit developers use to build large language models. He believes Nvidia's software will complement its AI-GPUs, keeping clients within its ecosystem.
However, history shows that innovations often face early-stage bubbles. Most businesses still lack a clear AI strategy, indicating that this technology is in its early stages. There is a high probability of a bubble-bursting event sooner rather than later with AI. Nvidia's historic rise also requires flawless execution, which is challenging to sustain. Recently, the company reported a three-month delay for its next-generation GPU platform, Blackwell, due to design flaws. This delay allows competitors to secure valuable data center real estate.
Super Micro Computer: Projected Increase of 195%
Another leading AI company that could see significant gains, according to a Wall Street expert, is Super Micro Computer (NASDAQ:SMCI), a specialist in customizable rack servers and storage.
Loop Capital's Ananda Baruah issued a $1,500 price target for Super Micro, just weeks after the company was added to the S&P 500. With shares trading at around $508 as of August 9, Baruah's price target suggests nearly tripling the stock's value.
Baruah believes Super Micro is well-positioned in the AI space to meet the growing demand for high-compute data centers capable of running generative AI solutions and training large language models. Additionally, its inclusion in the S&P 500 could drive its share price to $1,500, or $150 on a split-adjusted basis. On August 6, Super Micro announced a stock split.
Despite impressive triple-digit year-over-year sales growth for a long-established infrastructure company, caution is warranted. Super Micro incorporates Nvidia's H100 GPUs into its servers, but Nvidia can't meet all its demand, leaving Super Micro reliant on its suppliers. Previously, the company's stock surged in the mid-2010s on expectations of becoming a key infrastructure player in the enterprise cloud boom, but those lofty expectations were unmet.
Although Super Micro may continue to surprise in the short run, it is unlikely that Baruah's high target of $1,500 will be achieved.
Tesla: Projected Increase of 1,200%
The most optimistic price target for an AI company comes from Ark Invest CEO and Chief Investment Officer Cathie Wood.
Wood's team emphasized Tesla's (NASDAQ:TSLA) AI-powered robotaxi business, projecting $1.2 trillion in annual sales, with 63% of revenue and 86% of forecast EBITDA coming from robotaxis. However, Tesla has yet to put a single robotaxi on public roads, despite CEO Elon Musk's 2019 claim that the company would have over a million robotaxis on the road the following year. Tesla remains at Level 2 autonomy, making it difficult to achieve even a fraction of Wood's predictions.
Moreover, Tesla's valuation has been inflated by unfulfilled promises from Musk. The company has consistently failed to deliver on full autonomy and other ambitious projects. If these unfulfilled promises are accounted for, Tesla's shares could lose significant value.
Additionally, competition in the EV market has intensified. The price war Tesla initiated in 2023 to boost demand for its EVs has reduced its operating margin and hasn't stopped the rise of global EV inventory.
Tesla's pre-tax income increasingly relies on unsustainable sources, such as regulatory tax credits and interest income on cash reserves. In the June-ended quarter, nearly 66% of its pre-tax income came from these sources.
