A person looking at a mobile device while sitting at a computer desk with an overlay of AI algorithms and stock price charts.

1 Artificial Intelligence (AI) Growth Stock You Should Buy Freehand & 1 You Wouldn’t Touch With a 10-Foot Pole | The motley fool

In the wake of the worst stock market downturn in over a decade, things are starting to look up. Each of the major market indexes has recovered at least 20% from their recent lows, prompting some investors to herald the arrival of the next bull market, at least by that measure.

Fueling the recovery are recent advances in artificial intelligence (AI) and the great promise it offers, though estimates vary widely. Cathie Wood’s Ark Investment Management estimates that AI software could represent a $14 trillion revenue opportunity by 2030. More conservative forecasts from Morgan StanleyAND Goldman Sachsfix the opportunity at $6 trillion and $7 trillion, respectively, by the end of the decade.

This vast opportunity has investors scrambling to buy stocks better positioned to profit from the impending AI boom, and while some of these stocks have a long way to go, others raise far more questions than answers.

A person looking at a mobile device while sitting at a computer desk with an overlay of AI algorithms and stock price charts.

Image source: Getty Images.

Nvidia: Helping Kickstart the AI ​​Boom

Nvidia (NVDA -2.66%) it rose to prominence by pioneering graphics processing units (GPUs) that rendered lifelike visuals in video games. In recent years, however, the company’s processors have been reconfigured to speed data over the air, making it a staple in data centers and cloud computing. This also made them the perfect choice for running AI systems, a use case Nvidia leaned into.

For the first quarter of fiscal 2024 results through May, revenue of $7.2 billion increased 19% year over year, while earnings per share (EPS) of $0.82 increased 28%. But it was the company’s leadership that raised eyebrows on Wall Street. For the second quarter, management forecast revenue of approximately $11 billion, which would not only be an all-time high for the company, but would also represent growth of 64% year over year and 53% sequentially. CFO Colette Kress was clear that the results were “driven by growing demand for generative AI and large language models.” The growing excitement has driven Nvidia’s stock up 220% so far this year.

While other semiconductors can run AI systems, Nvidia is the gold standard. Additionally, the company continues to push the boundaries of performance, spending more than $1.8 billion on R&D, accounting for 26% of total revenue, to create the next generation of cutting-edge AI processors.

The company also benefits as data center and cloud computing operators harden their existing systems with the latest and greatest from Nvidia semiconductors to ensure they have the computational horsepower to keep up with the growing demand for artificial intelligence.

There’s no such thing as a “sure thing” in investing, but as things stand right now, Nvidia is as close as it gets.

C3.ai: in name only

Given the mad rush to capitalize on the impending AI boom, it seems only natural that investors would gravitate towards it C3.ai (TO THE -2.41%). After all, the company’s software-as-a-service (SaaS) offerings include more than “40 turnkey enterprise AI applications that meet the business-critical needs of global enterprises” across a broad range of industries. The AI ​​gold rush has fueled a staggering rise in C3.ai shares, with its shares up 270% year-to-date. On the surface, it looks like a no-brainer. But digging a little deeper, it’s easy to see why I wouldn’t touch this stump with a 10-foot pole.

A quick review of C3.ai’s recent financial results paints the picture of a struggling company. For the fourth fiscal quarter 2023 (ended April 30), C3.ai had revenue of $72.4 million, flat year-over-year, with a loss per share of $0.58, which deteriorated 5%. These findings came amid accelerating demand for AI systems, suggesting that C3 hasn’t been able to capitalize on the boom.

Perhaps even more concerning is the company’s outlook. For the upcoming quarter, C3.ai is driving revenue growth of just 9% year over year and 15% for the full year, all while its operating losses continue to grow. This serves to reinforce my concerns. While this is the best the company can hope for as the AI ​​boom begins, it doesn’t bode well for the future of C3.ai.

Full disclosure

I’d be remiss if I didn’t address the elephant in the room: Both stocks are trading at mind-boggling valuations, with plenty of growth already built into their respective share prices. Nvidia and C3.ai are currently selling 21 times and 13 times next year’s sales, respectively.

While C3.ai is technically the “cheaper” of the two, I still wouldn’t buy it. Given the company’s apparent inability to capitalize on the AI ​​gold rush – its claimed area of ​​expertise – and its mounting losses, I simply have no interest in this AI stock.

On the other hand, Nvidia’s management has been particularly adept at pivoting the company to profit from the changing technology landscape, capturing much of the data center, cloud computing, and artificial intelligence markets. Its place as the gold standard for AI computing makes Nvidia the AI ​​stock to buy with bare hands.

Danny Vena has positions at Nvidia. The Motley Fool has positions and recommends Goldman Sachs Group and Nvidia. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.

#Artificial #Intelligence #Growth #Stock #Buy #Freehand #Wouldnt #Touch #10Foot #Pole #motley #fool
Image Source : www.fool.com

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *