Financial Pros Top 5 AI Stocks - InvestingChannel

Financial Pros Top 5 AI Stocks

Proprietary Data Insights

Financial Pros’ Top AI Stock Searches in the Last Month

#1NVDANvidia Corp331
#2AMDAdv Micro Devices148
#3METAMeta Platforms Inc.116
#4MSFTMicrosoft Corp106
#5GOOGLAlphabet Cl A78
#ad Adding Color to the Investment Spectrum

Financial Pros Top 5 AI Stocks

This week, big tech earnings took the focus, with heavy hitters like Meta Platforms (META) and Microsoft (MSFT) reporting earnings.

Yet, no one has more pressure to perform than Nvidia (NVDA).

Forecasts put 2024’s growth up 71.6% compared to the trailing 12-month 125.9%.

Financial pros continue to search out this stock more than any other AI company despite earnings being a month away.

Yet, with the stock off 15% from its highs…

…and markets teetering on the edge…

…folks want to know whether they should hold or fold this AI monster.

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Nvidia’s Business

Once known only as a graphics card company, Nvidia has grown to become a pivotal player in the AI space.

AI companies like Meta and Google (GOOGL) can’t get enough of Nvidia’s high-end chips, which can run tens of thousands of dollars.

Today, the company’s graphics cards only account for 22% of sales, while computer and networking make up the rest.

Nvidia sees itself as more than just an AI chip designer. It aims to be the top provider of accelerated computing platforms.


Source: NVDA 2023 Annual Report Presentation

While demand remains robust, some analysts fear Nvidia’s dominance may be coming to an end.

Earlier this month, Meta and Google announced new in-house AI chips, reducing their need for Nvidia’s products.

ASML Holdings, a maker of semiconductor manufacturing equipment, recently said it saw orders lighten up in recent months.

Next month’s earnings will provide better insights into demand directly from Nvidia.



Source: Stock Analysis

Nvidia’s revenue growth is incredible, especially for a company of its size.

Yet, the margin expansion got investors giddy over the past year.

Almost half of every dollar of revenue turns into free cash flow, which is astounding.

To give you an idea of the scale, Nvidia generates almost $27 billion in free cash flow annually, or $11.30 per share.

The company only spends about $1.0 billion on Capex annually.

Plus, it holds just $11.1 billion in debt while carrying $26.0 billion in cash.

If Nvidia needs to spend to grow, it has the money to do so.



Source: Seeking Alpha

Crazy enough, Nvidia’s not that expensive.

It trades at just 36x forward earnings and operating cash flow.

That’s not that bad, considering a company like P&G trades at 20x forward cash flow.

And when you hold it up to a company like Microsoft, it’s valued about the same.

The difference is in the growth.



Source: Seeking Alpha

No one can argue that Nvidia’s recent growth is impressive.

Analysts expect them to hit high numbers in 2024.

The real question is where they land in 2025 and beyond.

Every other AI company on this list has revenue growth forecasted in the low to mid-teens.

Do you think Nvidia will fall to those levels by next year?



Source: Seeking Alpha

We can’t ignore Nvidia’s incredible margins built on their pricing power and streamlined business model.

The only category where anyone beats them is gross margins, and Meta does that just barely.


Our Opinion 9/10

Nvidia is a risky stock because of its price action, not its value.

We don’t foresee a massive pullback in AI chip spending in 2025.

As AI usage broadens, we see a higher and more stable demand for Nvidia’s chips.

As long as they can out-innovate their customers, Nvidia will have plenty of growth in the future.

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