We recently published a list of top 10 AI stocks Wall Street analysts are upgrading. NVIDIA Corp (NASDAQ:NVDA) ranks 3rd in the list. That’s why the stock deserves a deeper look.
There has been much uproar about AI stock valuations and how investors are overpaying for mega-cap tech stocks that are promising something that still lies far into the future — productivity gains, real-life AI products and AGI. But the market doesn’t seem to care what the AI skeptics and naysayers believe. There seems to be no end in sight to the AI-led gains in stocks. And analysts are expecting more. Goldman Sachs’s Scott Rubner recently said that he sees a “wall of money” heading towards the market. Rubner pointed towards the whopping $7.3 trillion sitting in money market funds and said he believes the floodgates are about to open and investors would funnel that money into stocks. According to Rubner’s model, the third quarter of 2024 is when we should expect billions ($29 billion, to be precise) to be flushed into the market.
One doesn’t need to have a crystal ball to know where all of those billions would be headed. AI is the promising theme everyone is betting on and that everyone includes experts, billionaires, money managers and long-term value investors. Tom Lee, Fundstrat Global Advisors co-founder, recently said in a program on CNBC that investors have been “hesitant” for much of the year, but they should just “stick” with “what’s working.” AI, weight loss drugs and related themes is what’s working these days, according to Lee.
Methodology
For this article we picked the top AI stocks Wall Street analysts recently upgraded or gave bullish comments about. 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).
A close-up of a colorful high-end graphics card being plugged in to a gaming computer.
NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 186
NVIDIA Corp (NASDAQ:NVDA) is getting several bullish calls from the Wall Street lately. Bank of America recently added NVIDIA Corp (NASDAQ:NVDA) shares to its US 1 List. The list includes BofA’s best investment ideas consisting of buy-rated stocks trading in the US. NVIDIA Corp’s (NASDAQ:NVDA) latest product announcements and its plans revealed at Computex show that NVIDIA Corp (NASDAQ:NVDA) has much more in its arsenal to power its growth engine. Analysts believe NVIDIA Corp’s (NASDAQ:NVDA) shift to new AI architecture known as Rubin (R100) and its powerful H100 and Blackwell chips easily beat competitors.
NVIDIA Corp (NASDAQ:NVDA) will start shipping H200 in the second half of this year. At its GTC conference NVIDIA Corp (NASDAQ:NVDA) revealed three accelerators – B200, GB200 and GB200 NVL72. All of these products provide growth catalysts for NVIDIA Corp (NASDAQ:NVDA) shares and justify its P/E multiple of 71, given NVIDIA Corp’s (NASDAQ:NVDA) growth expectation of over 100% this year and 32% next year. Based on 2026 EPS estimate set by Wall Street, NVIDIA Corp (NASDAQ:NVDA) is trading at a forward P/E multiple of 35.74, which makes the stock’s valuation attractive given the growth catalysts it has.
However, there are many other attractive opportunities in the AI space. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
RiverPark Large Growth Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its first quarter 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA): NVDA shares were our top contributor in the quarter following blowout 4Q results and 1Q guidance driven by strong data center sales. The company reported quarterly revenue of $22.1 billion, up 265% year-over-year, and EPS in the quarter of $5.16, up 487% year-over-year and 12% ahead of expectations. Revenue guidance for 1Q of $24 billion was 8% above very high expectations. The artificial intelligence arms race kicked-off by ChatGPT and Alphabet’s Bard, among others, has generated tremendous demand for Nvidia’s next generation graphic processors.
NVDA is the leading designer of graphics processing units (GPU’s) required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming-focused chip vendor to one of the largest semiconductor/software vendors in the world. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. Following recent results, Jensen Huang, founder and CEO of NVIDIA stated in the company’s press release, “a trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”
Overall, NVIDIA Corp (NASDAQ:NVDA) ranks 3rd in Insider Monkey’s list of Analysts are Upgrading These 10 AI Stocks. You can visit Analysts are Upgrading These 10 AI Stocks to see the other AI stocks that are on analysts’ radar. While we acknowledge the potential of NVDA, our conviction lies in the belief that under-the-radar 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.