What do you get when you combine beaten-down stock prices with an economic and technological niche poised to gain as it becomes ever more essential? You get stocks with a low cost of entry – plus high upside potential and approval from Wall Street’s analysts.
The niche we’re talking about is AI, artificial intelligence, once a pipe dream of science fiction but today a computing technology that is growing ever more important. AI powers the rapidly expanding Internet of Things, is the technology behind game changers like 3D printing, and has already transformed the world of online marketing. In its application to autonomous vehicles, it even promises to forever change the way we travel. No matter where you go, you can’t get away from AI.
The beaten down prices are an artifact of the current bear market and the lingering supply chain snarls. We’ve been facing a semiconductor chip shortage since last year, and it’s been affecting everything from heavy industry to health care to high-end computing. But the supply issues are starting to sort themselves out, and demand for AI-related tech remains high.
So let’s take a dive in, and look at some artificial intelligence stocks that are primed for growth in the months and years ahead – and whose prices now represent a low point of entry. We’ll take the latest data from the TipRanks platform, add in the analyst commentary on these stocks, and get a full picture.
Nvidia Corporation (NVDA)
First up is Nvidia, one of the chip industry’s major names. Nvidia has long been known for its high market share – better than 80% – in the graphics processing unit (GPU) segment, an important coup for this company, as high-end GPUs are in high demand. The chips, which were originally designed to allow sharper, more realistic graphics for computer games, have found applications in plenty of other sectors, where their high computing capacity has enabled AI and machine learning tech in data processing, medical imaging, smart home and city tech, and autonomous machines.
Nvidia has customers in all of those areas, and the autonomous machines – especially vehicles – proved to be a bright spot in the company’s recent fiscal 2Q23 earnings report. The quarter, which ended on July 31, saw Nvidia’s revenues and earnings both fall off sharply from Q1, but drilling down shows that the company’s news had some positive aspects, too.
At the top line, revenues dropped sequentially from $8.3 billion to $6.7 billion. At the same time, the Q2 results were still up 3% y/y. Earnings, however, did not fare so well. Non-GAAP diluted EPS fell q/q from $1.36 to $0.51, were down y/y by 51%. And that’s only part of the bad news.
Nvidia’s revenue was well below the $8.1 billion expectation, a miss that has been attributed to contractions in the computer gaming segment. And the company pulled back on its Q3 guidance, spooking investors – and prompting a sharp drop in the stock post-earnings release.
On the positive side, Nvidia saw large gains in its Data Center and Automotive segments, both areas in which the company’s high-end, AI capable chips have strong potential to expand market share – they offer strong computer capacity, backed by a company with a reputation for delivering quality in these areas in particular. Data Center revenue rose to $3.81 billion in fiscal Q2, for a y/y gain of 61%. The company’s automotive business is smaller, generating Q2 revenues of $220 million – but that was up 45% y/y and 59% q/q, showing not just gains, but accelerating gains.
Truist’s 5-star analyst William Stein acknowledges Nvidia’s slip in gaming revenue, describing it as ‘bitter medicine,’ but recommends the stock for its AI leadership. He writes, “Bears will focus on the potential for weakness to spread to datacenter. We acknowledge this possibility, but continue to see NVDA as the best positioned to capture share in the datacenter long-term, because its GPU leadership is sticky, and its newer products (DPU & CPU) align with emerging disaggregated compute architectures…. In CQ2, Automotive revenue of $220m grew by ~45% y/y and set an all-time high. Management noted strength driven by self-driving and AI cockpit solutions, partially offset by a decline of legacy cockpit revenue. The long-awaited growth in NVDA's automotive business finally appears to be materializing. Datacenter revenue was also strong, driven by demand in vertical markets and North American hyperscale customers.”
Along with an upbeat outlook, Stein gives NVDA shares a Buy rating; his $198 price target implies a one-year upside potential of 50%. (To watch Stein’s track record, click here.)
Turning now to the rest of the Street, where the stock has 31 reviews on file, with 23 Buys weighed against 9 Holds for a Moderate Buy consensus rating. Nvidia shares are selling for $131.98 and their $206.71 average price target indicates potential for 57% improvement in the next 12 months. (See Nvidia’s stock forecast at TipRanks.)
Marpai, Inc. (MRAI)
From semiconductor chips we’ll move to the health care sector, where tech firm Marpai has seen an opportunity to bring AI tech into the third-party administrator (TAP) segment of the field. This is a $22 billion market, and Marpai uses AI to design system features that will elevate care quality while reducing claims cost and lower the stop-loss premiums. Marpai’s approach to TAP is based on the use of proprietary predictive algorithms to streamline processes.
This health admin tech firm is relatively new to the public markets, having held its IPO just at the end of October last year. The offering, which opened on the 27th and closed on the 29th of the month, sold over 7.1 million shares for $4 each, and raised $28.75 million in gross proceeds, exceeding the $25 million originally planned for. Since the IPO, however, the stock has fallen by 78%.
Marpai has released 4 quarterly financial reports since going public, and shown a top line consistently between $4.8 million and $6.2 million. The most recent report, for 2Q22, showed revenues of $5.6 million, in the middle of that range – and slightly above expectations. On earnings, the company reported a net loss of $6.66 million, or 34 cents per diluted share. On a per-share basis, this was a significant improvement over the 54-cent diluted EPS loss recorded a year prior.
Giving Marpai an in-depth look, analyst Allen Klee of Maxim Group describes both the company’s product innovation and its potential: “MRAI is well-positioned to drive innovation in the third-party administrator (TPA) space. Employers that self-insure their employees’ healthcare can use Marpai to process claims and administer benefits. The company’s technology uses artificial intelligence (AI) to predict and mitigate potential high-cost health events, as well as to auto-adjudicate claims, reducing costs. Technology can also reduce waste in the system by steering members to the most cost-effective providers ahead of time. Through these efficiencies and by cutting out excess expenditures from traditional healthcare plans, Marpai believes employers can reduce healthcare costs by over 25%.”
Believing that Marpai can deliver for investors, Klee rates the shares as a Buy, and his 12-month price target of $2.50 implies a robust gain of 162%. (To watch Klee’s track record, click here.)
Some stocks fly under Wall Street’s radar and Marpai appears to be one such name; Klee’s is the only analyst review posted over the past 3 months. (See Marpai’s stock forecast at TipRanks.)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The atmosphere today is much different than it was a year ago when technology stocks were peaking. Fortunately, the stock market has two ends to it, meaning that 2022's bear market won't last forever and presents numerous oversold stocks. Using a combination of both methods mentioned below, I discovered the following three oversold tech stocks — SNAP, ORCL, and NVDA — that I'm bullish on.
Identifying Oversold Tech StocksThere are two ways to identify oversold technology stocks. The first is a market-based approach, which bears judgment on past prices. Secondly, one could utilize a fundamental growth analysis to identify disconnects between company growth metrics and their recent stock performance. Without further ado, let's take a look at the three oversold stocks mentioned earlier.
Snap Inc. (NYSE: SNAP)SNAP is one of the most underappreciated social media platform stocks on the market. Recently, Bank of America (NYSE: BAC) reiterated its Buy rating on the stock, claiming that "Snapchat Plus is likely seeing better-than-expected traction, and easier revenue growth comps ahead, a material macro improvement may not be necessary to achieve Snap's goals."
Even though global macroeconomic factors aren't completely in-check, SNAP operates in an industry with high barriers to entry and significant pricing power. As such, it's unlikely that it's as sensitive to economic headwinds as most enterprises due to the lack of available substitutes.
Furthermore, the company's second-quarter financial report conveys significant organic growth as the company's continued its successful Gen-Z and Gen-X conversion rates to reach an active user base of 347 million.
SNAP ticks all the boxes from a fundamental vantage point. The company's free cash flow has surged by 237% in the past year. In addition, SNAP sports a price-to-sales ratio of 4.2x, a 76.7% discount to its five-year average, suggesting it's an oversold asset.
Is SNAP Stock a Buy, According to Analysts?Turning to Wall Street, SNAP earns a Hold consensus rating based on nine Buys, 23 Holds, and two Sells. SNAP stock's average price target of $14.32 implies 26.7% upside potential.
Oracle (NYSE: ORCL)Oracle's cloud-based business structure is highly lucrative in today's consumer market. The company's experiencing hypergrowth in key segments, with its Cloud and Cloud Infrastructure divisions skyrocketing by 50% and 58% in the past year.
Oracle generated operating cash flow of $10.54 billion on a trailing-12-months basis. The cash flow allows it to roll out an array of cloud-based offerings in the coming years, which could add substance to the company's future cash flow. Moreover, Oracle's 77.8% gross profit margin suggests that it's achieved economies of scale, allowing it to exercise its pricing power and subsequently retain a price-driven competitive advantage.
Reputable investment banking analysts have recently sung their praises of Oracle. For instance, after Oracle released its first-quarter results, Philip Winslow of Credit Suisse (NYSE: CS) stated: "Oracle's strong results and guidance commentary reinforces our view that Oracle is well positioned to emerge as the [third or fourth] vendor in the [platform-as-a-service/infrastructure-as-a-service] market and as the [second] vendor in the [software-as-a-service] market—enabling the company to continue to reaccelerate revenue growth into the double digits."
BMO (NYSE: BMO) Capital's Keith Bachman also made his bullish sentiment heard as he opined: "Oracle has maintained [Fiscal 2023] guidance of 30% [constant year-over-year currency] organic cloud growth, which we think highlights the durability and healthy market demand for Oracle's cloud solutions."
Fundamental metrics suggest Oracle's stock is undervalued. For example, the stock's price-to-sales ratio of 4.3x is at a 16.8% discount to its five-year average. Additionally, Oracle's dividend yield of 1.77% provides lucrative total-return potential to market participants, which adds appeal to the stock's overall investment profile.
Is ORCL Stock a Buy, According to Analysts?Turning to Wall Street, Oracle earns a Moderate Buy consensus rating based on nine Buys, 11 Holds, and two Sells. Oracle stock's average price target of $88.38 implies 25.8% upside potential.
NVIDIA (NASDAQ: NVDA)NVDA is a stock that's garnered much attention lately. Supply-chain disruptions and talk of government support packages for semiconductor manufacturers have created a vacuum of volatility. However, objectively speaking, the stock is set for significant long-term upside as its key influencing variables are signed with a secular growth trajectory.
The company's key value proposition lies within its approximate 82% GPU market share, as GPU usage is set to grow at a staggering 33.6% per year until 2027. GPUs serve industries such as gaming, cryptocurrency mining, and any domain that derives from image recognition artificial intelligence. An exciting add-on for the GPU space is the evolution of artificial neural networks, which is a market growing at an annual rate of 21.4%.
NVIDIA's broad-based growth rates summarize its promising segmental exposure, as it exhibits a five-year EBITDA CAGR (compound annual growth rate) of 30.65%. In addition, NVIDIA's return on common equity of 34.41% highlights the company's robust bottom line, which generates plenty of value for its shareholders.
Is NVDA Stock a Buy, According to Analysts?Turning to Wall Street, NVIDIA earns a Moderate Buy consensus rating based on 24 Buys and nine Holds. NVDA stock's average price target of $208.06 implies 57.65% upside potential.
Conclusion: SNAP, ORCL, and NVDA Present a Diversified OpportunityBased on fundamental and numerous market-based metrics, SNAP, Oracle, and NVIDIA are oversold and could be set for a bounce. Furthermore, all three stocks present similar growth rates but hold differentiated target markets. Therefore, assembling a portfolio of these three tech stocks could add much-desired diversification attributes.
Lastly, there's no guarantee that the assets mentioned in this article will outperform. However, they're at significant discounts to their historical multiples, meaning that long-term investors would likely be wise to invest while these stocks are at their current price levels.
Nvidia (NASDAQ:NVDA) stock is down about 56% year-to-date. In addition to this significant value erosion, Mizuho Securities analyst Vijay Rakesh has opinied that NVDA’s earnings could also take a hit due to near-term challenges. Rakesh has lowered his price target on NVDA stock to 205 from $225. However, he is upbeat about NVDA’s long-term prospects and maintains a Buy recommendation.
What Could Hurt NVDA’s Growth?Citing Server and Data Center supply chain trends, the analyst highlighted that the “strength in Data Centers” is moderating. Further, the U.S. government’s new license requirement for exports to China (restrictions imposed to prevent technology transfers) remains a drag. Rakesh added that the weakness in gaming and crypto could put additional pressure on its revenues and earnings.
It’s worth mentioning that NVDA, which makes high-end GPUs (graphics processing units) and ICs, saw its Gaming revenue fell 44% quarter-over-quarter (down 33% year-over-year) in the second quarter of Fiscal 2023. Weakness in consumer demand, due to macroeconomic headwinds and the Russia-Ukraine war, is also responsible for this decline. Further, lower average sales pressured gaming revenues.
Moreover, lower demand from enterprises and OEMs (original equipment manufacturers) impacted its Professional Visualization revenues in the second quarter.
As for Data Center, revenues increased 61% year-over-year in the quarter but remained below management’s expectations.
Management expects the weakness in Gaming and Professional visualization revenues to continue in Q3. Further, reduced crypto mining is a concern. However, the company expects the strength in Data Center revenues to sustain.
Given the challenges, Rakesh has lowered his third quarter and Fiscal 2023 revenues and earnings guidance. However, he reiterates a Buy recommendation, as he sees NVDA “well-positioned with its AI dominance >90% of AI workloads, with AI <10% total server workloads.” Further, easier comparisons in Fiscal 2024 (on the earnings front) will likely act as a positive catalyst.
Is Nvidia Stock Expected to Rise?Despite the concerns mentioned above, analysts see a significant upside in Nvidia stock over the next 12 months.
NVDA’s average price target of $208.06 implies 60.9% upside potential. On TipRanks, NVDA stock commands a Moderate Buy consensus rating based on 24 Buys and nine Holds.
Bottom LineThe near-term headwinds, stemming from the export restrictions to China, the slowdown in Gaming, Crypto mining, and Professional Visualization revenues, could continue to hurt Nvidia's revenue and earnings. Nevertheless, its AI (Artificial Intelligence) capabilities and strength in Data Center and automotive revenues are expected to support the company's long-term growth.
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