Interest in artificial intelligence (AI) has exploded since ChatGPT was announced in late 2022. Nvidia has been one of the biggest winners in terms of revenue growth and stock price appreciation. But Wall Street still expects the stock to rise over the next year, while analysts predict further upside for Amazon. (NASDAQ:AMZN) and bistra (New York Stock Exchange: VST).
Nvidia has a median price target of $150 per share. This represents a 6% upside from the current share price of $141.
Amazon’s median price target is $220 per share. This represents a 17% upside from the current share price of $188.
Vistra’s median price target is $143.50 per share. This represents a 16% upside from the current share price of $124.
I think NVIDIA is a must-have stock for investors who want to take advantage of the AI boom. But owning a basket of AI stocks is the smartest strategy, so Amazon and Vistra are certainly worth considering.
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The Amazon investment thesis focuses on strong competitive advantages in three markets. Specifically, the company operates the largest online marketplace in North America and Western Europe in terms of sales. Amazon is also the third largest digital advertising company. And Amazon Web Services (AWS) is the largest public cloud.
Amazon leverages artificial intelligence across its retail operations to automate coding and supply chain management and provide product recommendations to shoppers. Morgan Stanley analysts believe the resulting cost savings could boost the company’s operating margins by several percentage points. But the company is particularly well-positioned to monetize AI due to its leadership in cloud infrastructure and platform services (CIPS).
According to Synergy Research Group, AWS accounted for 32% of CIPS spending in the second quarter, with Microsoft Azure in second place with a 23% market share and Alphabet’s Google Cloud Platform in third place with a 12% market share. AWS is taking the lead with Amazon Bedrock, a cloud service that allows companies to fine-tune pre-trained models and build custom generative AI applications.
Goldman Sachs analyst Kash Langan predicts public cloud spending will grow 22% annually to reach $2 trillion by 2030, with up to 15% of that total being generated. We think it could be spent on AI services. AWS is well-positioned to benefit from Bedrock, as it is already the largest public cloud in terms of revenue, customers, and partners.
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With this in mind, Wall Street expects Amazon’s profits to rise 25% over the next 12 months. Based on this consensus estimate, the current valuation of 45x P/E looks reasonable. In fact, 63 of the 67 analysts who follow Amazon currently rate the company’s stock as a “buy.” Investors should feel comfortable buying a small position in this AI stock today.
Vistra’s investment theory is straightforward. Businesses are spending a lot of money on AI infrastructure, but AI systems require huge amounts of computing power, and the AI systems themselves require huge amounts of energy. Many experts believe that nuclear power is the answer because it emits almost no carbon dioxide and is more reliable than renewable energies such as wind and solar. Vistra owns the second largest nuclear power plant in the United States.
Vistra is a utility company that integrates power generation across gas, coal, nuclear and renewable facilities and retail electricity sales to residential, commercial and industrial customers in 16 states and the District of Columbia. With an installed capacity of 41 gigawatts (GW), Vistra ranks as the largest power generator in the United States. The company is also the nation’s largest retail residential power company.
Importantly, Vistra recently signed long-term power purchase agreements with two hyperscale cloud companies at the center of the AI boom. The first involves the construction of a 200 megawatt solar farm with support from Amazon, and the second involves the construction of a 405 megawatt solar farm with support from Microsoft. Investors are hoping that Vistra will be followed by a nuclear deal, similar to the recent deal between Microsoft and Constellation Energy.
Notably, management expects the artificial intelligence boom to increase data center power demand by 35GW between 2023 and 2030, but that is by no means Vistra’s only growth driver. For example, population growth in West Texas could increase electricity demand by 20 GW by the end of the 2010s, and the company sees potential opportunities in the recovery of industrial activity.
Wall Street expects Vistra’s profits to rise about 250% over the next 12 months. This number reflects increased data center power demand and Vistra’s strong capital return program, with the company repurchasing a quarter of its outstanding shares over three years. In that sense, the current valuation of 91x P/E is reasonable. In fact, 14 of the 15 analysts who follow Vistra rate the stock a “buy.” And even the lowest price target of $127 per share means 2% upside.
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On rare occasions, our team of expert analysts will issue a “Double Down” stock recommendation on a company we think is about to crash. If you’re already worried that you’re missing out on an investment opportunity, now is the best time to buy before it’s too late. And the numbers speak for themselves.
Amazon: If you invested $1,000 when it doubled in 2010, you would have earned $21,154. *
Apple: If you invested $1,000 when it doubled in 2008, you would have earned $43,777. *
Netflix: If you invested $1,000 when it doubled in 2004, you would have earned $406,992. *
We currently have “double down” alerts on three great companies, and we may not see an opportunity like this again anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor will return as of October 28, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Trevor Jennewine has held positions at Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Constellation Energy, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Even better than Nvidia: 2 best artificial intelligence (AI) stocks to buy right now, according to Wall Street Originally published by The Motley Fool
