The macroeconomic headwinds continue to cripple most companies and industries this year. However, the artificial intelligence (AI) boom has pushed the performance of technology stocks to new heights. Investors with a high-risk tolerance are pouring money into growth stocks they believe will reap the rewards of the success of generative AI in the long run.
Nvidia (NASDAQ: NVDA)
Nvidia (NASDAQ: NVDA) is a high-end chip manufacturer that provides graphic processing units (GPUs) to a variety of industries. Even OpenAI‘s ChatGPT and other AI apps use the company’s chips. The success and long-term prospects of AI have pushed Nvidia’s stock up 233% year-to-date, outpacing the S&P 500’s return of 15%.
Nvidia’s collaboration with Indian conglomerates Reliance Industries Limited and Tata Group to develop AI supercomputers has the potential to increase its revenue even further in the coming years.
Nvidia had a profitable second quarter, ending with a robust balance sheet. At the end of the quarter, it had $12 billion in cash and $8.4 billion in long-term debt. It also had a free cash flow of $6 billion. Positive free cash flow determines the company’s ability to repay debts, pay dividends, and fund future projects.
Investors are eagerly awaiting the company’s third-quarter earnings, due in November, after management projected total Q3 revenue of $16 billion, owing to strong demand for its H100 GPUs.
According to TipRanks, Nvidia is a “Strong Buy” with an average target price of $636.62, implying a 45% upside potential in the next 12 months.
Microsoft (NASDAQ: MSFT)
Microsoft (NASDAQ: MSFT), the wildly popular tech giant, has a reputation for remaking itself in the constantly evolving and dynamic tech world. The company has run a profitable business even before it got involved with AI in 2019, thanks to its diverse business. It offers both hardware and software solutions, with renowned products such as Windows, LinkedIn, Xbox, Office, and Azure.
The stock has risen 35% this year, owing to a strong end to fiscal 2023, in which it reported $212 billion in total revenue and net profits of $73 billion.
Its significant advancements in its products, Office and Azure, through the use of Open AI technology, have also piqued the interest of investors.
Its AI tool, Microsoft 365 Copilot, costs $30 per user. Even if 40% of its users sign up for Copilot, Mizuho Securities analyst Gregg Moskowitz predicts the company’s revenue could increase by $19 billion by 2025.
TipRanks rates Microsoft as a “Strong Buy”, with an average target price of $392.35, implying a 19% upside potential.
The verdict
According to Statista, the AI market could grow more than twentyfold by 2030, reaching ten trillion U.S. dollars. Though this is an exciting niche to expand into, it is also highly competitive. However, I believe that Microsoft and Nvidia’s strong fundamentals and smart growth strategies could lead them to a bright future ahead.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
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