For the better part of the past two years, no trend has captured investor attention more than artificial intelligence (AI).
AI-powered software and systems have the potential to learn over time without human intervention, and the technology has the power to improve productivity and change the spending habits of consumers and businesses across most sectors and industries, which is why PwC researchers expect the global AI market to reach $15.7 trillion by year 10.
So far, semiconductor giant NVIDIA (NVDA -1.92%) The undoubted beneficiaries of the rise of AI are AI companies, but Wall Street experts say two other artificial intelligence stocks have truly incredible upside potential — up to 1,050%.
Image source: Getty Images.
Sorry, but Nvidia is yesterday’s news.
Between the start of 2023 and shortly after Nvidia completed its historic 1-for-10 stock split in June 2024, the company’s valuation soared from $360 billion to as high as $3.46 trillion. While it’s not the first $3 trillion company, it’s unprecedented for a market-leading company to achieve a valuation above $3 trillion in less than 18 months.
Nvidia’s expansion has been textbook success. Its AI graphic processing units (GPUs) have quickly become the preferred choice for enterprise data centers focused on running generative AI solutions and training large language models (LLMs). TechInsights analysts estimate that for the second year in a row, Nvidia accounted for 98% of GPUs shipped to data centers. What’s more, the company’s vaunted H100 backlog will likely see it maintain a near-monopolistic market share into 2024.
Nvidia’s extraordinary demand for AI-GPUs and extraordinary pricing power are underpinned by its all-important CUDA software platform. CUDA is the toolkit that developers use to build LLMs and get the most out of Nvidia hardware. Think of CUDA as the hook that typically keeps customers loyal to Nvidia’s ecosystem of products and services.
But Wall Street’s frenzy will eventually come to an end, and Nvidia may become a thing of the past.
One of Nvidia’s biggest advantages is its pricing power: As demand for AI-GPUs overwhelms supply, Nvidia’s chips often command prices 100% to 300% higher than competing hardware. But that could change soon.
Many rivals, including Advanced Micro Devices, are ramping up production of the fairly cheap AI-GPUs currently in stock, and companies hoping to gain first-mover advantage may have a strong incentive to use these rival chips.
Moreover, Nvidia’s top four net revenue customers are developing AI-GPUs in-house as a complement or eventually a replacement for the AI-GPU hardware they order from Nvidia. This certainly seems to bode well for access to AI-accelerated data center “real estate” after 2025.
As new chips become available and Nvidia’s major customers supplement their needs with home-grown AI-GPUs, Nvidia’s pricing power and gross margins will very likely decline, meaning Nvidia’s heyday may be behind us.
But that doesn’t appear to be the case for two other potentially high-growth AI stocks, according to predictions from some of Wall Street’s top experts.
The Model 3 is Tesla’s best-selling sedan. Image courtesy of Tesla.
Tesla: Expected to rise 1,050%
The first artificial intelligence stock that could surprise investors on the upside is electric vehicle (EV) maker Tesla. (TSLA -0.29%)Cathie Wood, CEO and chief investment officer at Ark Invest, predicts Tesla’s stock price will reach $2,600 per share by 2029, which would ultimately represent a staggering 1,050% gain based on the stock’s current price at the time of writing.
The main thesis behind Ark’s Monte Carlo analysis is that autonomous ride-hailing, or robotaxi, will be a major driver of Tesla’s growth. Ark projects Tesla will generate $1.2 trillion in revenue by 2029, with 63% of that coming from the robotaxi business. Furthermore, 86% of the company’s projected earnings before interest, taxes, depreciation, and amortization (EBITDA) of $440 billion will come from autonomous ride-hailing.
Tesla is the largest electric-vehicle maker in North America and has done something no other automaker has done in more than half a century — built a new car company from the ground up to mass-produce it — but there are plenty of reasons to believe Wood’s price target for the company is unlikely to come close to reality.
A glaring flaw in Wood’s Monte Carlo analysis is that it assumes rapid adoption of Tesla robotaxis, but Tesla currently has no autonomous robotaxis on public roads and has not exceeded Level 2 fully self-driving autonomy for years.
By comparison, Mercedes-Benz began selling vehicles with Level 3 self-driving technology in California and Nevada late last year and is developing a hands-free Level 4 system. Tesla is rapidly losing its lead in self-driving capabilities and is unlikely to meet Cathie Wood’s revenue and EBITDA targets.
To make matters worse, Tesla is losing its grip on the EV market as more and more competitors emerge. As expected, Tesla’s operating margins plummeted last year after it launched a price war in which it cut the prices of its EV models more than six times. Even more damaging, these price cuts have not halted the company’s EV inventory from growing globally.
Finally, the company’s pre-tax profits are increasingly coming from regulatory tax credits sold to other automakers and interest income on cash balances — unsustainable sources of income and not what one would expect from a market leader.
To be clear, I don’t think Tesla is the “next Nvidia.”
Mobileye Global: Expected to rise 216%
Another AI stock with attractive upside potential that could follow yesterday’s Nvidia news is advanced driver-assistance systems (ADAS) and autonomous driving technology company Mobileye Global. (MBLY -1.94%)Are you noticing the next generation of automobiles/EVs trend?
Chris McNally, global auto and mobility analyst at Evercore ISI, believes Mobileye’s stock could surge to $35 a share, lower than its all-time high but still a staggering 216% increase from the stock price at the time of writing.
The optimism surrounding Mobileye has to do with the continued addition of technology and driver safety features with each new generation of cars, especially electric vehicles. The company’s lineup of EyeQ chips is relied on to power SuperVision, an end-to-end ADAS system enabled by 11 cameras and a map for autonomous vehicles that learns over time.
Despite the excitement surrounding the technology, the EV industry faces challenges common to early-stage innovation: Global EV sales have slowed in recent quarters due to factors including a lack of EV infrastructure, reducing demand for Mobileye’s solutions.
Mobileye Global also cited delays to the launch of ADAS systems by major customers outside China and new tariffs in Europe and the U.S. as reasons it was forced to soften its revenue guidance recently. The company’s midpoint forecast for full-year revenue is $1.64 billion, well below the peak of $1.96 billion expected in 2024.
One silver lining for Mobileye Global is that the company ended the second quarter with $1.2 billion in cash and cash equivalents and no debt on its balance sheet, giving Mobileye exceptional financial flexibility even with short-term ordering irregularities.
While it may take some time for demand for ADAS technology to mature, Mobileye’s solution appears well positioned for eventual success.
