Over the past two years, no trend has captured investor attention like artificial intelligence (AI).
The potential for AI-enabled software and systems to learn over time without human intervention gives this technology the ability to improve productivity and change consumer/enterprise consumption habits across most sectors and industries. As a result, PwC researchers expect the global addressable market for AI to reach $15.7 trillion by the end of the decade.
So far, the semiconductor giant Nvidia (NASDAQ: NVDA) is the undisputed beneficiary of the AI boom. But according to select Wall Street experts, two other AI stocks offer truly eye-popping upside — up to 1,050%!
Sorry, Nvidia, but you guys are old news.
Between early 2023 and shortly after Nvidia completed its historic 10-for-1 stock split in June 2024, its valuation soared from $360 billion to a peak of $3.46 trillion. While it wasn’t the first $3 trillion company, we’ve never seen a market-leading company hit $3 trillion in valuation in less than 18 months.
Nvidia’s expansion is truly a textbook example. The company’s AI graphics processing units (GPUs) have quickly become the go-to choice in enterprise data centers focused on running generative AI solutions and training large language models (LLMs). Based on estimates from analysts at TechInsights, Nvidia has accounted for 98% of GPUs shipped into data centers in consecutive years. Moreover, with its prized H100 backlog, it will likely maintain a near-monopoly-like market share through 2024.
The extraordinary demand and outlandish pricing for Nvidia’s AI GPUs have been aided by the all-important CUDA software platform. CUDA is the toolkit developers use to build LLMs and get the most out of their Nvidia hardware. Think of CUDA as the hook that keeps customers loyal to Nvidia’s ecosystem of products and services, typically.
But all moments of euphoria on Wall Street must come to an end, and Nvidia may be a thing of the past.
One of the biggest advantages Nvidia has is its pricing power. With the overwhelming demand for AI GPUs, Nvidia’s chips often carry a 100% to 300% price premium over competing hardware. But that could soon change.
A number of competing companies, including Advanced micro devicesare ramping up production of their significantly cheaper AI GPUs that are, for now, available. Companies looking to gain first-mover advantages may have strong incentives to use these rival chips.
Additionally, Nvidia’s four largest customers by net revenue are developing AI GPUs internally to complement or eventually replace the AI GPU hardware they’ve ordered from Nvidia. It certainly appears that access to AI-accelerated data center “real estate” will become harder to come by starting in 2025.
As new chips become available and Nvidia’s larger customers supplement their needs with home-grown AI GPUs, Nvidia will likely see its pricing power and gross margins erode. In short, Nvidia’s best days are likely over.
But based on the predictions of a number of Wall Street experts, that is not the case for two other AI stocks with potentially high growth.
Tesla: Implied Upside of 1,050%
The first artificial intelligence stock that could surprise investors is an electric vehicle (EV) maker. Tesla (NASDAQ: TSLA). Ark Invest CEO and Chief Investment Officer Cathie Wood has predicted that Tesla stock will hit $2,600 per share by 2029. Based on the stock price at the time of writing, that would ultimately represent a whopping 1,050% increase!
The primary thesis behind Ark’s Monte Carlo analysis is that autonomous ride-hailing (i.e., robotaxis) will drive a large portion of Tesla’s growth. Ark expects Tesla to generate $1.2 trillion in sales by 2029, 63% of which would come from its robotaxi business. Furthermore, 86% of the $440 billion in forecast earnings before interest, taxes, depreciation, and amortization (EBITDA) would come from autonomous ride-hailing services.
While Tesla is the largest electric car maker in North America and the company has accomplished something no other automaker has done in more than half a century – building a new car company from the ground up to mass production – there are plenty of reasons to believe that Wood’s price target for the company is nowhere near reality.
The glaring flaw in Wood’s Monte Carlo analysis is that it assumes rapid adoption of Tesla’s robotaxi. Tesla, however, has exactly zero autonomous robotaxis on public roads and hasn’t surpassed Level 2 full self-driving autonomy in years.
For comparison: Mercedes-Benz began selling vehicles with Level 3 autonomous self-driving technology in California and Nevada late last year, and has developed hands-free Level 4 autonomous driving systems. Tesla has quickly lost its lead in autonomous driving capabilities and is very Cathie Wood is unlikely to meet its revenue and EBITDA targets.
To make matters worse, Tesla is losing its grip on the EV market, with competition popping up out of nowhere. After Tesla embarked on a price war last year that saw it cut the price of its EV models more than half a dozen times, operating margins have predictably plummeted. The kicker is that these price cuts have done little to stop the company’s global EV supply from plummeting.
Last but not least, an increasing percentage of the company’s pre-tax income can be traced to statutory tax credits sold to other automakers and interest income on its cash position. These are unsustainable sources of income and not what you would expect from a market leader.
I can say that I don’t believe Tesla is the “next Nvidia”.
Mobileye Global: Implied Upside of 216%
The other AI stock with a tempting upside that could make news yesterday is the company that develops advanced driver assistance systems (ADAS) and autonomous driving technologies. Mobileye Worldwide (NASDAQ: MBLY). Are you already noticing the trend of next generation vehicles/EVs?
Evercore ISI global automotive and mobility analyst Chris McNally believes Mobileye stock could rise to $35 per share. While that’s below its all-time high, it would represent a staggering 216% increase from the shares trading at the time of writing.
The optimism surrounding Mobileye has to do with the continued addition of technology and driver safety features to each new generation of vehicles, particularly electric vehicles. The company’s EyeQ line of chips is used to power SuperVision, an end-to-end ADAS system driven by 11 cameras and autonomous vehicle maps that learn over time.
While there is a lot of excitement surrounding this technology, the EV industry is facing challenges that typically plague early innovations. The lack of available EV infrastructure, among other factors, has weakened global EV sales in recent quarters and led to reduced demand for Mobileye’s solutions.
Mobileye Global also pointed to a major customer outside of China delaying the launch of its ADAS system, as well as new tariffs in Europe and the U.S., as additional reasons it has had to temper its sales forecast of late. The company’s full-year sales forecast of $1.64 billion at the midpoint is well below the peak of $1.96 billion once expected in 2024.
If there is a silver lining for Mobileye Global, it is that the company ended the second quarter with $1.2 billion in cash and cash equivalents and no debt on its balance sheet. Even with irregular short-term orders, Mobileye has exceptional financial flexibility.
While it may take some time for demand for ADAS technology to grow, Mobileye’s solutions appear well positioned for eventual success.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and Tesla. The Motley Fool recommends Mobileye Global. The Motley Fool has a disclosure policy.
Nvidia Is Yesterday’s News: These 2 Artificial Intelligence (AI) Stocks Are About to Surge 1,050%, According to Select Wall Street Experts was originally published by The Motley Fool
