Macroeconomic headwinds have continued to impact most companies and industries this year. However, the artificial intelligence (AI) boom has driven the performance of technology stocks to new heights. Investors with high risk tolerance are putting money into growth stocks they believe will benefit from the success of generative AI in the long run.
Nvidia (NASDAQ: NVDA)
Nvidia (NASDAQ: NVDA) is a high-end chip maker that provides graphics processing units (GPUs) to various industries. Even OpenAI’s ChatGPT and other AI apps use the company’s chips. AI’s success and long-term prospects have driven Nvidia’s stock up 233% over the past year. S&P 500The return is 15%.
Nvidia Stock Price YTD. Source: finbold.com
Nvidia’s collaboration with Indian conglomerates Reliance Industries Ltd and Tata Group to develop AI supercomputers has the potential to boost its revenues even further in the coming years.
Nvidia had a profitable second quarter, ending with a strong balance sheet. At the end of the quarter, it had $12 billion in cash and $8.4 billion of long-term debt. It also had $6 billion of free cash flow. Positive free cash flow determines a company’s ability to service debt, pay dividends, and fund future projects.
Due to strong demand for the H100 GPU, management has forecast total Q3 revenue of $16 billion, with investors eagerly awaiting the company’s third quarter earnings in November.
According to TipRanks, Nvidia is a “strong buyWith an average target price of $636.62, there is potential for a 45% upside over the next 12 months.
NVDA Stock Price Projection. Source: tipranks.com
Microsoft (NASDAQ: MSFT)
Microsoft (NASDAQ: MSFT), the hugely popular tech giant, is famous for constantly reinventing itself in the ever-evolving and dynamic tech world. The company already ran a profitable business thanks to its diverse business even before it got involved with AI in 2019. It offers both hardware and software solutions with well-known products like Windows, LinkedIn, Xbox, Office, and Azure.
The stock is up 35% this year, led by a strong end to fiscal 2023, in which it reported total revenue of $212 billion and net profit of $73 billion.
Microsoft shares price YTD. Source: finbold.com
Its significant advancements in its products, Office and Azure, through the use of open AI technology have also piqued investor interest.
Its AI tool, Microsoft 365 Copilot, costs $30 per user. Even if 40% of its users sign up for Copilot, Mizuho Securities analyst Greg Moskowitz estimates the company’s revenue could grow to $19 billion by 2025.
TipRanks rated Microsoft as “strong buy”, with an average target price of $392.35, indicating 19% upside potential.
Microsoft stock price projection. Source: tipranks.com
According to Statista, the AI market could grow more than twenty-fold to reach ten trillion US dollars by 2030. Although this is an exciting space to expand into, it is also highly competitive. However, I believe Microsoft and Nvidia’s strong fundamentals and smart growth strategies can lead them to a bright future.
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