Missed Nvidia's Run-up? My Top Artificial Intelligence (AI) Stock to Buy and Hold - Latest Global News

Missed Nvidia’s Run-up? My Top Artificial Intelligence (AI) Stock to Buy and Hold

Nvidia (NASDAQ:NVDA) has been one of the hottest stocks on the market in recent months, and that’s not surprising since the company has played a crucial role in the artificial intelligence (AI) revolution.

Companies in the race to develop and deploy AI applications are turning to Nvidia’s graphics processing units (GPUs) to harness the parallel processing power of its chips to train large language models (LLMs) like ChatGPT. As it turned out, demand for Nvidia’s GPUs was so strong that the company struggled to meet end-market demand, resulting in long wait times.

The good news is that Nvidia has increased its production capacity, and that explains why the company is expected to deliver another year of solid growth in fiscal 2025 (which has just begun). Revenue is expected to rise nearly 84% to $112 billion this fiscal year, while profit is expected to rise 91% to $24.87 per share. All of this explains why investors are investing in Nvidia stock, which has already gained more than 82% in 2024.

Nvidia appears well-positioned to justify its expensive earnings multiple of 75, considering the potential growth the company could deliver. The strong future earnings growth can be seen in a significantly lower expected price-to-earnings ratio of 37. However, investors who missed out on Nvidia’s terrific run-up and are wary of paying a high earnings multiple should consider taking a closer look Microsoft (NASDAQ:MSFT).

Just like Nvidia, Microsoft is also a major player in the AI ​​market and can currently be purchased at a reasonable price. For this reason, smart investors should consider this immediately.

Microsoft shares are attractively valued and AI has a positive impact on their growth

Microsoft shares have gained just 10% so far this year. This explains why the stock can still be bought at a relatively reasonable earnings multiple of around 35, which is much lower than Nvidia’s multiple. Microsoft’s expected earnings multiple of 31 also represents a discount to Nvidia’s.

Of course, Microsoft isn’t growing as fast as Nvidia, but the company has consistently beaten Wall Street’s earnings expectations in recent quarters and its growth has accelerated.

For example, Microsoft’s revenue in the third quarter of fiscal 2024 (ended March 31) rose 17% year-over-year to $61.9 billion. That was a nice acceleration from the 7% revenue growth the company posted in the same period last year.

Additionally, Microsoft’s year-on-year profit growth also improved to 20% in the previous quarter, compared to 10% in the year-ago period. AI is playing a key role in this acceleration, as Microsoft management noted in its recent earnings call. CEO Satya Nadella noted that the company’s Azure cloud platform “has gained market share as customers use our platforms and tools to build their own AI solutions.”

More specifically, AI drove 7 percentage points of growth for Microsoft’s Azure cloud business last quarter, while the segment posted 31% year-over-year growth. Growth could have been stronger if Microsoft had been able to meet all AI-related demand for cloud services, but the company said demand was higher than supply.

This explains why Microsoft has increased its spending on cloud AI infrastructure around the world in countries such as Japan, France, Indonesia, Malaysia and the US. Even better: Recent reports suggest that the tech giant could spend $100 billion to build a generative AI supercomputer by 2028. This means Microsoft is setting itself up to capitalize on the booming demand for cloud AI services in the long term benefit.

According to a third-party estimate, the cloud AI market was worth an estimated $43 billion in 2022. The market is expected to see 36% annual growth through 2032 and generate a whopping $887 billion in annual revenue. Microsoft generated just over $100 billion in revenue from its Intelligent Cloud division last year, and the increasing growth opportunities in the cloud AI market suggest that the company still has plenty of room to grow in this area.

Considering the potential AI-related gains Microsoft could make in the AI-powered personal computing and workplace productivity markets, it will come as no surprise that the company’s growth will continue to accelerate in the long term.

Robust earnings growth suggests healthy share price growth

Analysts expect Microsoft’s profits to grow 16% annually over the next five years, which would represent a slowdown compared to the 20% annual profit growth over the past five years. However, observers have already seen Microsoft’s profit growth accelerate thanks to AI. Therefore, it will come as no surprise to see the company’s profits grow faster in the future.

Assuming that Microsoft manages to achieve a 25% annual earnings growth rate over the next five years, fiscal 2028 earnings could reach $29.93 per share (with fiscal 2023 earnings reaching $9.81). -dollars per share serves as the basis). Multiplying the forecast earnings by Microsoft’s five-year future earnings of 29 points gives a stock price of $868 after five years – a 110% increase from current levels.

However, if the market decides to reward Microsoft with a higher valuation or the company delivers stronger earnings growth, this AI stock could see significantly stronger gains. That’s why investors who missed the Nvidia bandwagon should consider jumping on Microsoft stock before it hits the accelerator.

Should you invest $1,000 in Microsoft now?

Before buying Microsoft stock, consider the following:

The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Microsoft wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.

Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $578,143!*

Stock Advisor provides investors with an easy-to-follow roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks per month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns from May 13, 2024

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.

Missed Nvidia’s run-up? “My Best Artificial Intelligence (AI) Stock to Buy and Hold” was originally published by The Motley Fool

Sharing Is Caring:

Leave a Comment