We recently published a list of Analyst Says These 10 AI Stocks Have More Upside Potential. Since Nvidia Corp (NASDAQ:NVDA) ranks 4th on the list, it deserves a deeper look.
King Lip, BakerAvenue Wealth Management’s chief strategist, recently talked to CNBC about the latest decline in tech stocks and market rotation. Lip said that he’s still bullish on tech stocks and a single event does not show a trend. However, the cause of decline in tech stocks last week was the lower-than-expected CPI data which caused investors to do some “profit taking” and invest in names that can benefit “more” from lower interest rates, according to the analyst. Lip noted that small-cap stocks, real estate stocks, among others, gained ground on the back of this trend.
However, Lip has high expectations from the upcoming earnings reports from tech companies. He also said that July has been one of the strongest months for tech stocks. Lip, however, said that major tech companies cannot go on to post record gains and their returns are expected to “fall in line with historical returns.”
Lip thinks the economy is entering a “Goldilocks scenario” where growth is steady but not “hot enough” to cause inflation. He reiterated his view that he expects strong earnings growth this year and in 2025, which could be a tailwind for stocks.
Asked what would cause earnings growth of tech companies, Lip said a lot of that comes down to efficient management and strong cash piles these companies have. He also said “slightly” lower interest rates could also be a tailwind for the economy.
Since Lip is bullish on tech stocks and believes major AI companies still have upside potential, we decided to take a look at the top names in his portfolio. These are the top holdings of King Lip, according to CNBC. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 186
NVDA is one of the top AI stock picks of King Lip.
UBS also believes Nvidia Corp (NASDAQ:NVDA) is well-positioned to benefit from the $331 billion market opportunity in the AI Enabling layer, thanks to its GPUs. In the Cloud segment of the Enabling layer, UBS thinks Nvidia Corp’s (NASDAQ:NVDA) DGX offering makes the company a promising player. Nvidia Corp (NASDAQ:NVDA) DGX Cloud is a supercomputing service that gives enterprises access to software and infrastructure required to train advanced models for generative AI. It’s a combination of servers and workstations for optimizing deep learning applications through the use of general-purpose computing on graphics processing units (GPGPU).
On the Intelligence and Application layer of the AI value chain, UBS sees no notable catalyst for Nvidia Corp (NASDAQ:NVDA).
NVIDIA Corp’s (NASDAQ:NVDA) latest product announcements and its plans revealed at the Computex 2024 show that NVIDIA Corp (NASDAQ:NVDA) has much more in its arsenal to power its growth engine. Analysts like NVIDIA Corp’s (NASDAQ:NVDA) shift to new AI architecture known as Rubin (R100) and think its powerful H100 and Blackwell chips easily beat competitors.
L1 Capital International Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“Simply not owning NVIDIA Corporation (NASDAQ:NVDA) was a key contributor to the relative underperformance of the Fund against its Benchmark. The Wall Street Journal even published a recent article with the title ‘No Nvidia in Your Portfolio? You’re Just Toast’. While that is a little melodramatic, it is rare for one company to have such an outsized impact on index returns.
We readily admit that we underestimated the speed and scale with which Nvidia has been able to monetise its leading position in supporting the growth of AI. We have refreshed our financial analysis and while our valuation of the business has increased materially, we continue to view the current share price as providing an unattractive risk adjusted return in most scenarios. We appreciate the business has surprised to the upside in the past and we continue to follow Nvidia closely.”
Overall, Nvidia Corp (NASDAQ:NVDA) ranks 4th on Insider Monkey’s list titled Analyst Says These 10 AI Stocks Have More Upside Potential. While we acknowledge the potential of Nvidia Corp (NASDAQ:NVDA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
