These three artificial intelligence (AI) stocks have up to 102% upside potential, according to select Wall Street analysts

By | March 20, 2024

Over the past thirty years, a seemingly endless stream of next-big-thing investment opportunities have captured the attention of professional and casual investors. Innovations, such as the advent of the Internet, have changed the respective growth curve of the US economy.

Right now, no investment trend is getting people as excited as the artificial intelligence (AI) revolution.

AI involves the use of software and systems to perform tasks that would normally be overseen by humans. The not-so-secret ingredient fueling the potential for AI is machine learning (ML), which allows software and systems to “learn” and become more proficient at their tasks over time.

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Image source: Getty Images.

It is widely believed that AI will find application in most sectors and industries. Its pervasive use pushed PwC researchers to predict a massive $15.7 trillion increase in global gross domestic product (GDP) from AI by 2030.

The undeniable potential of artificial intelligence is not lost on Wall Street and its analysts. Price targets for most AI stocks have soared over the past year and are changing. This is especially true for leading AI stocks Nvidia (NASDAQ: NVDA).

A trio of AI stocks may offer more upside than Nvidia

Just under a month ago, Rosenblatt analyst Hans Mosesmann launched a Street-high price target of $1,400 per share on Nvidia. Should Mosesmann’s prediction be correct, Wall Street’s beloved AI stock would gain 59% and add about $1.3 trillion to its already high market cap.

There have certainly been a plethora of reasons for investors to fall in love with Nvidia. The A100 and H100 graphics processing units (GPUs) have become indispensable in high-computing data centers. As a result, Nvidia has enjoyed exceptional pricing power on its AI-accelerated GPUs and has completely upended Wall Street’s sales and profit forecasts. Furthermore, a majority of the ‘Magnificent Seven’ are aggressively purchasing their AI infrastructure.

However, problems can arise in paradise. While it’s no secret that external competition in the AI ​​GPU space is increasing, many investors seem to be overlooking the fact that Nvidia’s four largest customers by revenue — Microsoft, Metaplatforms, AmazonAnd Alphabet — develop their own AI GPUs. These four companies aim to reduce their dependence on Nvidia’s chips and appear poised to reduce the size of their orders in the coming years.

Furthermore, Nvidia’s growth has the potential to be its own downfall in the current and subsequent fiscal years (Nvidia’s fiscal year ends at the end of January). GPU scarcity has been a driving force behind Nvidia’s data center revenue growth. As in-house production increases and external/internal competition increases, GPU scarcity will decrease. If that’s the case, Nvidia’s GPU pricing power, and therefore gross margin, should shrink significantly.

Despite Mosesmann’s high price target, three other AI stocks could deliver juicier returns, based on the high price targets of select Wall Street analysts.

A miniature pyramid of cardboard boxes and a mini orange hand basket on top of a tablet and open laptop.A miniature pyramid of cardboard boxes and a mini orange hand basket on top of a tablet and open laptop.

Image source: Getty Images.

JD.com: 100% implicit advantage

The first company to rely on AI solutions to fuel its growth and could surpass Nvidia in the returns department is China’s JD.com (NASDAQ: JD). Benchmark analyst Fawne Jiang set a $55 price target for JD stock less than two weeks ago, which would imply a 100% upside based on where the stock closed on March 15.

JD clearly announced its entry into the AI ​​race last summer when it introduced the large language model (LLM) ChatRhino. JD aims to leverage its LLM technology within the industrial environment to shorten innovation timelines and reduce supply chain issues in finance, healthcare, retail and logistics. Although development for ChatRhino began in 2021, JD’s team of engineers wanted to refine the technology before introducing it more widely.

While JD.com is counting on AI to boost its growth potential, the company’s fundamental operating segment remains its e-commerce platform. JD moves to the back Alibaba.com as China’s No. 2 online retail marketplace.

What has helped differentiate JD from Alibaba is its e-commerce operating model. While Alibaba relies heavily on third-party marketplaces, JD operates as a true direct-to-consumer (DTC) company. In other words, it handles the inventory and logistics to get purchased products to consumers. By having more control over these various DTC processes, JD can achieve superior margins in the long term.

JD.com is also cheap. Even after the recent rally, the shares are valued at just eight times full-year earnings. This makes Jiang’s $55 price target a real possibility.

SentinelOne: 68% implicit advantage

A second AI stock that offers more upside than Nvidia, at least based on a Wall Street analyst’s prediction, is an endpoint cybersecurity company SentinelOne (NYSE:S). Analyst Peter Weed of Bernstein expects SentinelOne to reach $37 per share, which would be a 68% upside if he’s right.

The great thing about cybersecurity solutions is that they have become a basic necessity. No matter what happens to the American economy, hackers and robots won’t spare a moment to steal sensitive corporate data. Third-party vendors like SentinelOne are increasingly seeing the burden of protection fall on their shoulders.

SentinelOne’s platform, known as Singularity, relies on AI and ML. The integration of AI and ML allows Singularity to “learn” so that it can become more effective at identifying and responding to potential threats over time.

While the growth curve has been a bit bumpy at times, the company’s key performance indicators suggest the platform is hitting its mark with businesses. Of particular note, as of January 31, 2024, SentinelOne had 1,133 customers generating at least $100,000 in annual recurring revenue (ARR), which is 30% more than the same period last year. A rapidly rising ARR above the $100,000 mark suggests the company is winning bigger customers, which is a necessity if it wants to turn the corner to recurring profitability.

SentinelOne’s subscription pricing model is also an advantage. Subscription-based models often lead to predictable cash flow and improve customer retention.

While things rarely go in a straight line from point A to B on Wall Street, Weed’s price target could be within reach over the next two years.

Baidu: 102% implicit advantage

Last but not least, Wall Street’s high price target on China Baidu (NASDAQ: BIDU) suggests it may run circles around the infrastructure backbone of the AI ​​movement, Nvidia. Analyst Fawne Jiang of Benchmark, who believes JD.com can double, also placed a $210 price target on Baidu. If this level were to materialize, Baidu shareholders would enjoy a 102% increase in value.

Baidu’s ties to AI come in two forms. First, it operates one of the largest AI cloud infrastructure service platforms in China. Enterprise cloud spending is still increasing, so there’s a real chance Baidu can enjoy continued double-digit growth in its AI Cloud segment.

Secondly, Baidu is the parent company of Apollo Go, the world’s most successful autonomous taxi service. This intelligent driving company has overseen more than five million rides since its inception.

While these AI-driven operating segments are boosting Baidu’s organic growth, the company’s cash cow segment remains the Internet search engine. According to data from GlobalStats, Baidu accounted for 60.1% of the Internet search share in the world’s second-largest economy by GDP in February. With few exceptions, Baidu’s search engine has maintained a 60% to 85% share of Internet searches in China over the past nine years. As a clear choice for merchants looking to target consumers, Baidu should enjoy exceptional strength in advertising pricing.

Furthermore, Baidu is sitting on a mountain of capital. At the end of 2023, it had more than $28 billion in cash, cash equivalents and various short-term investments. This capital gives Baidu a lot of flexibility in terms of innovation, while at the same time providing a healthy downside cushion for its shares.

Baidu’s price-to-earnings ratio of just over 8 is remarkably cheap, suggesting the stock has a reasonable chance of hitting Jiang’s price target of $210 within the next 12 to 24 months.

Should you invest $1,000 in JD.com now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet, Amazon, Baidu, JD.com and Meta Platforms. The Motley Fool holds positions in and recommends Alphabet, Amazon, Baidu, JD.com, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

Forget Nvidia: These Three Artificial Intelligence (AI) Stocks Have Up to 102% Gains, According to Select Wall Street Analysts, originally published by The Motley Fool

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