Nvidia Stock Surges Ahead of Earnings: AI Boom and Investor Sentiment Drive Momentum

2 reasons to buy Nvidia stock before 28 August

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. Artificial intelligence (AI) is the single biggest leap in technology since the internet -- or so say its biggest believers. Its effect on the market has been enormous. Led by the poster child of the AI revolution, Nvidia Corp (NASDAQ: NVDA), AI stocks went on a tear over the last few years that made a lot of people a lot of money. The last month or so hasn't been so kind; the Nasdaq Composite Index (NASDAQ: .IXIC) is down more than 10% since its peak in early July. The majority of big tech players released their earnings for Q2 2024, and although there was a lot of positive news -- Meta Platforms posted 22% year-over-year revenue growth for the quarter -- investors were somewhat spooked by the larger-than-expected spends the companies are planning to make on AI infrastructure. This, in combination with broader market fears -- here's hoping the Federal Reserve can nail that "soft landing" -- hit Nvidia hard. Its stock is down over 22% since July 10. But you know what? I think this is great news. It's a buying opportunity for those who still believe in the stock, and I do. With the company set to release its Q2 numbers on Aug. 28, here are two reasons to buy before it does. 1. Big tech doesn't plan to slow its spending soon During the latest round of earnings calls, CEOs from the big tech players fueling Nvidia's monster returns fielded questions about their companies' expectations for future capital expenditures (capex), specifically those relating to AI. Alphabet, for instance, spent about $32.3 billion in capex in 2023. This year, the company could hit $50 billion. That's a massive increase, and it's not alone. Check out this chart showing the net change in capital expenditures from Alphabet et al. over the past year. META Capital Expenditures (Quarterly) data by YCharts If there is an end to massive spending on AI infrastructure, it is some ways off. AI is too big an opportunity, and no company wants to be left behind. As Alphabet CEO Sundar Pichai put it in the earnings call, "The risk of underinvesting is dramatically greater than the risk of overinvesting for us here." Although there is more to AI infrastructure than the chips Nvidia provides, they are arguably the most essential part, and Nvidia is likely to be flooded with cash for some time. Of course, Nvidia must work to maintain its market share, but it is in a strong position to do so. 2. There are signs that AI is delivering real-world value But can AI deliver the kind of real-world value that justifies its enormous cost? I think the jury is still out, but Meta's recent earnings make me more confident. As I mentioned earlier, Meta posted 22% revenue growth from a year ago and a whopping 73% jump in earnings per share. During its recent earnings call, CEO Mark Zuckerberg attributed this jump in part to AI. The company used AI to improve its content algorithm, which led to more engagement. This translated into more use, which meant more advertising revenue. Zuckerberg spoke of his plans to have AI craft entire marketing campaigns -- both strategy and the creative assets themselves -- for advertisers. This could open up a whole new revenue stream for the company. The idea is just one example of the powerful, revenue-generating promise of AI. The more evidence of real-world value, the more companies will be willing to continue to spend on AI, and that is good news for Nvidia.

Nvidia: A Strong Buy Into Earnings (NASDAQ:NVDA)

Looking for a portfolio of ideas like this one? Members of The Financial Prophet get exclusive access to our subscriber-only portfolios. Learn More " The last time I wrote exclusively about Nvidia (NASDAQ:NVDA) was before the recent split, when the stock was at around $950 (split-adjusted $95). I discussed buying the stock because Nvidia provided another excellent earnings report, announced a 10-1 stock split, and shared other constructive developments. The road higher was well-defined, and Nvidia's stock surged by approximately 50% in roughly one month before topping at about $140. Then I put out a cautious piece, indicating that Nvidia and other top momentum AI plays likely needed a reset, and a reset they got. Nvidia's stock crashed by about 35%, skidding to a low of around $90 before rebounding recently. While the pullback was substantial, it appears very similar to the pullback Nvidia had before its prior earnings announcement. The March/ April selloff brought Nvidia down by about 25% before the stock turned around and marched to new ATHs. Therefore, based on prior technical events, we may see a similar melt-up into earnings. Nvidia should deliver one of the most highly anticipated earnings reports after the market closes on August 28th. While expectations are high, Nvidia went through a considerable technical correction process and experienced a substantial valuation reset. Moreover, Nvidia guided to about $28B in revenues, yet the consensus estimate is for around $28.54B. While the estimate is slightly higher than the guidance, Nvidia could still beat the projections because it likely sandbagged its estimates to "easily beat" when it reported. Therefore, I expect another superb quarter, and Nvidia's stock is a strong buy here. Market participants seem prematurely looking for a top in the AI rally. Recently, Goldman Sachs and other market strategists have raised concerns regarding the extent of the AI trade. While it is healthy to point out concerning factors in the market, we don't want to make unfounded conclusions, especially regarding the validity of the AI rally or its time frame. As in any bull market cycle, there have been concerning factors, but that is why the market recently went through a constructive pullback and consolidation phase. Also, I believe that AI is still in a relatively early stage of its development and monetization cycle, and the current bull market run may be around the fourth or fifth inning. In other words, roughly 40-50% done, suggesting there could be considerable upside potential before a true market top is reached. The AI market is expanding rapidly. It is expected to grow from around $184B this year to $826B by 2030, and other sources predict even more robust growth. The global AI market CAGR may be around 37% in this hyper-expansion time frame. Nvidia's dominant market-leading position could enable it to capitalize more on the AI super growth cycle in future years. Therefore, I am skeptical about making bearish near-term AI predictions, as there could be immense growth in this lucrative space. Nvidia remains the king of AI primarily because its state-of-the-art GPUs, APUs, and other advanced processors are the preferred power providers of the giant enterprise AI server market. Nvidia's products are effectively the picks and shovels in the trenches, powering the enormous AI industry from the ground floor. One of the main factors that should enable Nvidia to continue moving higher is that it essentially has a moat. Its flagship GPUs combined with its CUDA software enabled an enormous head start for Nvidia in the AI space, and switching to an alternative may seem unthinkable to many users. Nvidia enjoys enormous pricing power, controls an estimated 70-95% of the AI chip space used for training and deploying models like OpenAI's GPT, and boasts a massive gross margin of around 78%. Intel (INTC) and AMD (AMD) have gross margins of 41% and 47%, respectively, but Nvidia's dominance signals how far ahead it is in the AI/enterprise market GPU/APU space. Whereas a 78% gross margin is a significant reward for the company now, it likely is not sustainable in the long term. In time, competition could grind down Nvidia's advantage, causing its gross margin and other profitability metrics to fall. Historically, Nvidia has enjoyed relatively high margins, with the gross margin around 60-65% in recent years. However, due to the enormous demand for the AI/enterprise segment and Nvidia's pricing power, its gross margin has recently surged to 75-80%. While this level of profitability may not be sustainable in the long term, it is not a reason to sell Nvidia's stock today. Nvidia's profitability prowess could deflate steadily instead of sharply, and the deflation period could be years away. Also, it's not just Nvidia's gross margin. Its net income margin has surged above 50% from its recent 30-40% trend. A 50%+ net income margin may not be sustainable, and we should anticipate seeing its net margin decline to 45-40% or lower in future years. Therefore, we should also expect a considerable stock price decline if Nvidia's decreasing profitability stage materializes. Nvidia is still in a solid earnings growth phase, and the momentum could continue driving its stock higher. Nvidia reported a TTM EPS of $1.80 when the consensus estimate was $1.57. Therefore, despite the excellent growth, Nvidia has outperformed the consensus EPS estimates by roughly 15%. This constructive trend could continue, and if Nvidia outperforms by a modest 10%, it could deliver around $3 in EPS for fiscal 2025 and about $4-4.50 in EPS in fiscal 2026. This dynamic puts Nvidia's fiscal 2025 P/E ratio at about 40 and its forward fiscal 2026 P/E ratio in the 30-27 range, which is relatively inexpensive for a company in Nvidia's advantageous market-leading position. Moreover, if Nvidia can earn toward the higher end of the estimate range next year, it could achieve an EPS of $5-5.50, suggesting its forward P/E ratio may be around 25-22 in a more bullish case scenario. Due to the bullish fundamental backdrop, Nvidia's stock price could increase considerably in future years. If Nvidia continues expanding sales and earnings, its P/E multiple could remain elevated around the 30-35 level. Therefore, we could continue seeing Nvidia's stock price increase as its sales and EPS grow in future years. This dynamic suggests that Nvidia remains a solid long-term buy and likely has considerable upside potential. Nvidia's primary risk is disappointing the market. Nvidia's stock has gone through a considerable expansion phase, and there are whispers that Nvidia may be in a bubble. There are also concerns that Nvidia is following in the footsteps of Cisco (CSCO), and its stock may deflate considerably, similar to Cisco's post-internet model meltdown. Furthermore, the market wants to see continued improvements from Nvidia to justify its ever-expanding valuation. The potential decrease in margins and profitability is a concern, and growing competition is an instrumental factor. Also, risks involving a slower-than-expected economy and relatively high-interest rates should be evaluated. Investors should consider these and other risks before investing in Nvidia.

Nvidia Stock on Pace for Best Week in Over a Year Ahead of Earnings, Chip Demand

Nvidia's stock was on pace for its best week in over a year as investors turned their attention to its upcoming earnings and demand for its artificial intelligence-powered chips. Shares were trading around $123.19, a 0.3% gain, on Friday. The stock, which has more than doubled on the year, is up 18% this week, on pace for its best weekly performance since the week ending May 26, 2023. Nvidia's gains this week reverse some of last week's activity, with three of the five trading days ending in percentage losses. A few factors that clouded the broader landscape were macroeconomic concerns including questions about the Federal Reserve's approach to cutting interest rates and a stronger yen affecting the carry trade, an approach by investors to borrow in the currency of place where interest rates are low and using it to invest a currency where interest rates are higher. The market has rebounded from last week's selloff on better-than-expected consumer sentiment. Many companies have signaled their intent to incorporate artificial intelligence into their operations and invested heavily into the space, though investors have questioned when they will see returns. Tech companies in particular have deepened their commitments to AI efforts, though executives from Google parent Alphabet, Microsoft, Facebook parent Meta Platforms and Amazon.com have said the spending is expected to pay off over a number of years, and that the current risk is in investing too little in AI rather than too much. This approach puts Nvidia in a prime position to extend its leading position as the chip maker's products are vital to handling AI capabilities and functions. "Nvidia earnings on August 28th will [be] a key momentum gauge for tech investors to truly validate the next stage of this AI Revolution," said analysts at Wedbush in a research note. Shares of other chip makers including Marvell Technology and Advanced Micro Devices also rose, edging up 1.1% to $70.08 and 0.8% to $148.53, respectively.

Artificial Intelligence (AI) Isn't the Top Reason to Buy Nvidia Stock, According to the "Dean of Valuation." Here's What He Says Is. | The Motley Fool

Nvidia needs to do one thing to justify its premium valuation, in Aswath Damodaran's opinion. If I had to pick one reason to invest in Nvidia (NVDA 4.05%) right now, it would be the company's growth prospects fueled by artificial intelligence (AI). Many investors would no doubt agree with me. But not all of them. Aswath Damodaran, a finance professor at New York University often called the "Dean of Valuation," disagrees. AI isn't the top reason to buy Nvidia stock, according to Damodaran. However, he thinks another factor could be. Earlier this year, Damodaran posted in X (the app formerly known as Twitter) that Nvidia "is a bridge too far for me." He added that he had halved his position in the stock in the summer of 2023 and was doing so again. Damodaran built a model to value all the so-called "Magnificent Seven" stocks. He calculated the fair value of Nvidia was $436.34 per share. This was before the company's 10-for-1 stock split, so his fair value translates to $43.63 after the split. Nvidia is now nearly 2.7 times higher than Damodaran's fair value. Has the "Dean of Valuation" changed his mind about the stock? Not really. Damodaran still views Nvidia as too expensive to buy. However, he recently offered a hypothetical reason why the stock might be worth buying for some investors. Niels Kaastrup-Larsen interviewed Damodaran for his "Top Traders Unplugged" podcast earlier this month. When the subject of Nvidia arose, the NYU professor offered an interesting take. Damodaran said that AI doesn't justify Nvidia's market cap of close to $3 trillion. Instead, he said, "It's the expectation that Nvidia will find another business out there that is big and be a first mover there." Nvidia has a pretty good track record on this front. Damodaran told Kaastrup-Larsen, "It's a company that's managed to find new markets and jump into them ahead of everybody else. It did it with gaming. It did it with crypto. It did it with AI." Why doesn't Damodaran think AI will provide enough growth potential to justify buying the stock at the current price? He explained, "Even if you believe the Goldman Sachs numbers for AI being a $3 trillion business or a $4 trillion business, the architecture for AI, which is what Nvidia provides, can't be more than a half a trillion of that. And that's actually larger than any of the predictions I've seen for how high the AI chip business has going." Let's assume Damodaran is right. What new markets could Nvidia enter to make the stock a great pick now? Several possibilities come to mind, many of which the company is already targeting. For example, quantum computing could represent a huge opportunity within a few years. The metaverse is another possibility. However, I think Nvidia's greatest potential is in AI -- but an expansion of AI beyond what's available now. Some experts think artificial general intelligence (AGI) could be developed by the end of this decade. Robotaxis using AI technology could become a massive market within a few years. Edge AI -- running AI models on devices locally instead of in the cloud -- could be a key opportunity for Nvidia, especially with consumer devices such as smartphones and smart glasses. What Damodaran is talking about is called optionality. Nvidia could have lots of optionality in the future. The "Dean of Valuation" isn't confident enough in the company's ability to capitalize on its opportunities to buy the stock. But for those investors who are, Nvidia's current pullback could present a great buying opportunity.

Billionaires Are Dumping Shares of Artificial Intelligence (AI) Stock Nvidia for a Third Straight Quarter -- Here's Why | The Motley Fool

More than a half-dozen prominent billionaire money managers were sellers of Wall Street's artificial intelligence (AI) leader for a third consecutive quarter. The most important data release of the quarter occurred earlier this week -- and I'm not talking about the much-anticipated July inflation report. No later than 45 calendar days following the end to a quarter, institutional investors with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F offers an under-the-hood glimpse of which stocks Wall Street's smartest, most-successful, and richest investors have been buying and selling. Despite the limitations of 13Fs -- e.g., they can be 45 days old when filed, meaning the data you're seeing might be stale for active fund managers -- they provide invaluable clues as to what stocks, industries, sectors, and trends are piquing the interest of Wall Street's brightest asset managers. While there's been plenty of buying and selling activity for companies involved in what's currently the buzziest investment opportunity, artificial intelligence (AI), the theme for the latest round of 13Fs is that Wall Street's billionaire investors are continuing to pare down their stakes in AI darling Nvidia (NVDA 4.05%). Since the page was turned to 2023, shares of Nvidia have catapulted higher by 709%, as of the closing bell on Aug. 14, which translates into an increase in market cap of more than $2.5 trillion. Quite a few billionaire investors and their funds have benefited immensely from this move higher. The catalyst behind this historic gain for a market-leading business is the company's data-center hardware. More specifically, Nvidia's H100 graphics processing unit (GPU) has become the brains powering the split-second decision-making needed in enterprise data centers running generative AI solutions and training large language models. In 2023, Nvidia's chips had a near-monopoly (98% share) of the GPUs shipped to data centers, per TechInsights. The beauty of having an in-demand product is the exceptional pricing power that usually comes with it. With demand for the H100 outstripping supply, Nvidia has been able to increase the selling price of its AI-GPU to between $30,000 and $40,000. The end result being a big uptick in the company's adjusted gross margin. But not all money managers believe Wall Street's AI leader has enough gas left in the proverbial tank to deliver for investors. According to newly filed 13Fs on Aug. 14, seven prominent billionaire asset managers were sellers of Nvidia's stock during the June-ended quarter (total shares sold in parenthesis): During the March quarter, eight billionaire investors -- nine, if you include Jim Simons of Renaissance Technologies, who passed away in May -- sent shares of Nvidia to the chopping block, while eight select billionaires were also sellers in the December-ended quarter. Although profit-taking following a monstrous run higher is a logical explanation behind this billionaire investor exodus, there are close to a half-dozen other factors that may shed more light on why money managers keep heading for the exit. History might just be the clearest reason billionaires are steadily heading to the sideline. Every next-big-thing technology and trend over the last 30 years has navigated its way through an early stage bubble. Put another way, investor expectations with regard to adoption and utility have far exceeded reality for every buzzy innovation or trend over the last three decades. With most businesses lacking a well-defined blueprint as to how they'll generate a positive return on their AI investments, it's looking likely that AI is the next in a long line of next-big-thing bubbles. If the AI bubble bursts, no stock would, arguably, be hit harder than Nvidia. The expectation for a meaningful increase in competition is another reason billionaires may be showing shares of Nvidia to the door. Given AI's massive addressable market, a number of external competitors are entering the picture with AI-GPUs of their own. Furthermore, Nvidia's four largest customers by net sales are internally developing AI chips for their data centers. These complementary chips will minimize the "real estate" in high-compute data centers for Nvidia's hardware. Thirdly, billionaires are wisely not overlooking the ceiling that regulators have put in place. In 2022, and again in 2023, U.S. regulators imposed export restrictions to China for Nvidia's high-powered AI chips. Following the first round of restrictions in 2022, Nvidia developed the toned-down H800 and A800 chips for the world's No. 2 economy. Unfortunately, these GPUs were added to the export restriction list last year. These restrictions may cost Nvidia billions of dollars in quarterly sales. A fourth catalyst behind this ongoing selling by billionaires might have to do with the lack of buying we've witnessed from company insiders. There hasn't been an open-market purchase of Nvidia stock from an executive or board member since December 2020. Meanwhile, CEO Jensen Huang has been selling his company's stock hand over fist since mid-June. While not all insider selling is bad news -- some sales may be done for tax purposes -- a complete lack of buying activity suggests none of Nvidia's higher-ups believe shares are a good value. Lastly, Nvidia's valuation is an eyesore. Although its forward price-to-earnings (P/E) ratio suggests shares might actually be inexpensive, its trailing-12-month (TTM) price-to-sales (P/S) ratio reached levels in June thar rivaled the TTM P/S peaks observed from the likes of Cisco Systems and Amazon prior to the dot-com bubble bursting. In spite of the euphoria surrounding artificial intelligence, the actions of some of Wall Street's brightest investment minds appear to suggest that trouble lies ahead.

Jefferies expects strong beat in July for Nvidia amid Blackwell delays (NASDAQ:NVDA)

Jefferies expects another strong beat in July and strong guidance into October from Nvidia (NASDAQ:NVDA), with beats of about $1B for both results and guide. The semiconductor giant is expected to report second quarter results on August 28. The consensus estimates call for earnings per share of $0.64 on revenue of $28.54B. Jefferies analyst Blayne Curtis noted that there are two primary drivers moving estimates at the moment. "Shorter term, the length and impact of the Blackwell delays are pushing out some of the revenue upside from Blackwell, with investors trying to parse out to what degree. Longer term, the debate has shifted from NVL volumes and content to the mix of DGX vs. MGX configurations." Nvidia stock was up 0.6% in morning trade on Friday. According to a report in May, last-minute design flaws have forced Nvidia to delay the launch of its latest artificial intelligence chips by at least three months, affecting customers such as Meta, Google and Microsoft. Curtis further added that demand for the company's Hopper chips remains robust, and inventories and continued production should help bridge the gap to Nvidia ramping Blackwell. Seeking Alpha analysts and Seeking Alpha's Quant ratings are cautious and rated the stock a Hold, while Wall Street consider it a Strong Buy. Earlier in the week, UBS retained its Buy rating on Nvidia, saying after a series of customer discussions and more supply chain work, the brokerage was making slight adjustments to its 2025 EPS model to $4.87 from $4.95. The stock has more than doubled in value so far this year, compared to the over 16% rise in the broader S&P500 Index.

3 Artificial Intelligence (AI) Stocks That Can Skyrocket Up to 1,200%, According to Select Wall Street Pundits | The Motley Fool

Wall Street's hottest trend since the advent of the internet 30 years ago is bringing out some otherworldly price targets from analysts and money managers. Beginning in the mid-1990s, the internet completely changed the way consumers and businesses interacted. Though it took time for this innovative technology to go mainstream and mature, the internet, ultimately, altered the growth trajectory for Corporate America in a positive way. For three decades, Wall Street and investors have been eagerly awaiting the next leap forward in technology that would do for businesses what the internet did in the mid-1990s. After a long wait, artificial intelligence (AI) looks to be the answer. The massive addressable market for AI stems from the ability of software and systems to learn without human intervention. This machine learning capacity can help AI systems become more efficient at their tasks, or potentially learn entirely new skills, over time. The game-changing potential of AI isn't lost on Wall Street institutions, analysts, or money managers. Most pundits expect this revolutionary technology will make investors richer -- but some price targets are more outsized than others. Based on the prognostications of three Wall Street pundits, the following trio of widely owned AI stocks offer as much as 1,200% upside! The first artificial intelligence stock that at least one Wall Street expert believes will soar is data-center hardware leader Nvidia (NVDA 1.67%). Despite Nvidia gaining more than $2.2 trillion in market value since the start of 2023, analyst Hans Mosesmann of Rosenblatt Securities believes it could effectively become Wall Street's first $5 trillion company. His Street-high $200 price target, which was issued following Nvidia's historic 10-for-1 forward split, suggests that 91% upside exists, based on the $104.75 share price the company ended at on Aug. 9. Like most Nvidia optimists, Mosesmann believes it'll maintain its dominance of AI-graphics processing units (GPUs) used in high-compute data centers. With demand for the company's chips handily outpacing supply, it's had little trouble increasing the selling price for its GPUs and boosting its adjusted gross margin. But Mosesmann is equally excited about Nvidia's CUDA platform. This is the toolkit developers use to build large language models. In Mosesmann's view, Nvidia's software will work hand-in-hand with its AI-GPUs to keep clients within its ecosystem. However, history is very much working against Mosesmann's prediction. We haven't seen a next-big-thing innovation in 30 years avoid an early stage bubble. With most businesses lacking a clear game plan for AI, it's pretty evident this technology is still early in its maturation process. In short, there's a high probability of a bubble-bursting event sooner than later with artificial intelligence. Nvidia's historic run-up also requires flawless execution, which simply isn't sustainable. Less than two weeks ago, it was reported that delivery of the company's next-generation GPU platform, known as Blackwell, would be delayed by at least three months due to design flaws. Even with this chip being sold out well into 2025, a delay opens the door for external and internal competitors to secure valuable data center "real estate." More than likely, we've already witnessed Nvidia's stock peak. A second leading AI stock that can skyrocket, according to the forecast of one Wall Street analyst, is customizable rack server and storage specialist Super Micro Computer (SMCI 1.70%). Less than a month after Super Micro was added to the benchmark S&P 500, Loop Capital's Ananda Baruah issued a sky-high $1,500 price target on the company. With shares of Super Micro having retraced to "just" $508 and change, as of the closing bell on Aug. 9, Baruah's price target implies a near-tripling may await. Baruah believes the company is perfectly positioned within the AI space to capitalize on growing enterprise demand for high-compute data centers capable of running generative AI solutions and training large language models. Additionally, its addition to the S&P 500 should allow for multiple expansion that, ultimately, drives its share price to $1,500 -- or $150 on a split-adjusted basis. On Aug. 6, Super Micro became the latest high-profile company to announce a stock split. While there's no denying that triple-digit year-over-year sales growth for a long-established infrastructure company is impressive, there are also reasons for investors to be cautious. For instance, Super Micro Computer incorporates Nvidia's ultra-popular H100 GPUs into its rack servers. The problem for Super Micro is that Nvidia can't meet all of its demand. This means it's at the mercy of its suppliers. There's a bit of a precedent for expectations getting ahead of reality for Super Micro Computer, as well. The company's stock rocketed higher in the mid-2010s on the expectation that it would be a key infrastructure player in the enterprise cloud boom. Unfortunately, the lofty expectations of Wall Street and investors weren't met. Although Super Micro Computer may continue to surprise in the short run, I find it highly unlikely that Baruah's high-water target of $1,500 comes to fruition. However, the crème-de-la-crème of upside price targets for AI stocks comes courtesy of Ark Invest CEO and Chief Investment Officer Cathie Wood. In June, Ark's Monte Carlo analysis anointed a (drum roll) $2,600 price target on electric-vehicle (EV) manufacturer Tesla (TSLA -3.10%) by 2029. This implies a market cap of roughly $8.3 trillion, which is more than double the value of world's largest publicly traded company at the moment. Wood and her team arrived at this lofty price target by placing immense emphasis on Tesla's AI-powered robotaxi business. Five years from now, Wood expects Tesla to generate $1.2 trillion in annual sales, with 63% of revenue, and 86% of the $440 billion in forecast earnings before interest, taxes, depreciation, and amortization (EBITDA), coming from robotaxis. There is, unfortunately, a glaring flaw with Ark Invest's Monte Carlo model. Namely, Tesla doesn't have a single robotaxi on public roads, despite claims from CEO Elon Musk in April 2019 that his company would have "over a million robotaxis on the road" the following year. Tesla has been unable to move past Level 2 autonomy, which is going to make it virtually impossible for the company to achieve even a fraction of what Wood's Monte Carlo analysis has predicted. Perhaps the bigger issue here is that Tesla's valuation has been inflated by promises made by Musk that haven't been kept. In addition to failing to deliver on "over a million robotaxis," Musk has suggested that Tesla's EV are "one year away" from full autonomy every year for a decade. If this laundry list of unfulfilled promises and hype (e.g., Optimus) are backed out of Tesla's valuation, shares could easily lose three-quarters of their value, if not more. To make matters worse, competition has picked up in a meaningful way for the company's EV business -- i.e., the operating segment that's historically generated most of its cash flow and operating income. The price war Tesla kicked off in 2023 to spur demand for its EVs cratered its operating margin and has been unable to halt the rise of global EV inventory. Last but not least, Tesla's pre-tax income has become increasingly reliant on unsustainable sources. Nearly 66% of the company's pre-tax income in the June-ended quarter was derived from regulatory tax credits sold to other automakers and interest income on its cash. Suffice it to say, nothing justifies Tesla's current $200 price tag, let alone Wood's $2,600 moonshot call.

When You Look Back on This Moment in 2030, You Might Wish You'd Bought This Trillion-Dollar Artificial Intelligence (AI) Stock | The Motley Fool

Amazon wants to be the go-to destination for artificial intelligence (AI) developers, whether they need computing power or ready-made large language models. Wall Street and industry experts are unquestionably bullish on artificial intelligence (AI). Here are just some of the forecasts floating around: If those forecasts come to fruition, I think one company has the potential to benefit more than any other. Amazon (AMZN -0.08%) has a fast-growing presence in AI hardware, large language models (LLMs), and AI software applications through its cloud computing platform. As an added bonus, the tech giant is using AI to enhance its legacy e-commerce business. When 2030 rolls around and investors are reflecting on this moment, here's why they might wish they had bought Amazon stock. Developing AI is complex and expensive, but businesses want the technology to boost productivity and create new revenue opportunities. Amazon Web Services (AWS) is the world's largest cloud computing platform, and it's becoming a destination of choice for AI developers because of its infrastructure and broad portfolio of AI services. Amazon CEO Andy Jassy refers to hardware as the bottom layer of AI, which includes data centers and the chips within them. Like most cloud providers, AWS uses Nvidia's industry-leading graphics processors (GPUs) in its data centers, but Jassy says developers are constantly demanding better price performance. That's why Amazon designed its own chips called Trainium (for AI training) and Inferentia (for AI inference). Trainium, for example, offers up to 50% cost-to-train savings over Amazon's other infrastructure, which means developers can stretch their funding to create more advanced models. That brings us to the middle layer of AI, which features ready-made LLMs for businesses seeking a turnkey solution instead. Bedrock on AWS has the largest selection of third-party LLMs in the industry, including Anthropic's Claude 3.5 lineup, which are the best-performing models in the world. Businesses can use these in combination with their own data to accelerate the development of AI software. Software is the third and final layer, and Amazon has that covered, too. Amazon Q is a new virtual assistant embedded in AWS, and Jassy says it's the most capable AI-powered tool of its kind for software development. It has the highest known acceptance rate for code suggestions, and it also outranks all competing products in catching security vulnerabilities. AWS delivered a record $26.2 billion in revenue during the recent second quarter of 2024 (ended June 30), which represented 19% growth from the year-ago period. That result marked the third consecutive quarter of accelerating revenue growth for the platform, and AI is a key reason why. E-commerce remains Amazon's largest source of revenue, so the company is constantly searching for new ways to make the segment more efficient. Last year, Amazon broke its national fulfillment network into eight distinct regions to reduce logistics costs and deliver products to customers more quickly. Plus, it already relies upon hundreds of thousands of AI-powered autonomous robots to streamline its fulfillment processes. Now, Amazon is rolling out Project Private Investigator, which uses AI and computer vision to identify defective products before they are shipped to customers. That should reduce the rate of returns, which, in turn, will lower costs and boost customer satisfaction. It adds to a number of other AI tools that are already active on amazon.com. AI powers the recommendation engine to show shoppers the most relevant products, which helps drive sales. Additionally, customers can use a virtual shopping assistant called Rufus, which is trained on Amazon's entire product catalog, enabling it to answer questions and help with comparisons. Amazon also offers a suite of AI software to sellers, which empowers them to create more engaging product pages and ads to increase their conversions. Amazon generated $148 billion in revenue across all of its businesses during Q2, a 10% increase from the year-ago quarter. That takes its trailing 12-month revenue to $604.4 billion. Based on the company's market capitalization of $1.7 trillion, its stock trades at a price-to-sales ratio (P/S) of just 2.9, making it cheaper than every other tech giant valued at $1 trillion or more: Amazon has struggled to convert its revenue into profitability in the past, which is why investors assigned it such a low P/S ratio. In simple terms, they are saying Amazon's revenue isn't as valuable as the revenue generated by Nvidia, for example, because more of Nvidia's revenue flows to the bottom line as profit. However, Amazon has improved its bottom line dramatically over the last few quarters. It generated $13.5 billion in net income during Q2, a whopping 101% increase from the year-ago period. That followed three straight quarters of at least triple-digit percentage growth in net income, so there is clear momentum. AWS is the profit engine of the entire organization, but Amazon's e-commerce business is also benefiting from its AI and efficiency initiatives, which are boosting margins. Wall Street expects Amazon's profitability to continue climbing into 2025, when earnings per share could potentially come in at $5.85. That places its stock at a forward price-to-earnings ratio (P/E) of 28.5, which is cheaper than the current 29.6 P/E ratio of the Nasdaq-100 index. So, Amazon looks attractive from that perspective too. Ultimately, this could be a great entry point for investors who are willing to hold the stock while the AI revolution builds momentum into the end of this decade, as many forecasts suggest.

2 AI stocks to Buy Now With $200 | The Motley Fool

These growing companies could multiply your money over the next decade. Artificial intelligence (AI) is estimated to add trillions in value to the global economy through cost savings and productivity gains in the coming years. The returns for investors could be very lucrative, if you own the right stocks. While some AI stocks will be volatile as Wall Street sorts out the winners and losers, investors can stack the odds in their favor by investing in profitable tech leaders that are already seeing growing demand for their services. Here are two stocks benefiting from the AI boom that an investor can easily afford with less than $200. Palantir Technologies (PLTR 2.01%) is seeing accelerating growth for its AI software platforms. The company is known for its relationship with the U.S. Department of Defense and intelligence agencies, but its momentum in signing corporate deals speaks to the inherent value of the company's AI platform and why the stock should be a long-term winner. Palantir's revenue, which comes from subscriptions, grew 27% year over year in the second quarter. That's also is up from 13% in Q3 2023, and its quarterly growth has improved each quarter over the last year. Government revenue is still growing fast at 23% year over year and reaching $371 million in the second quarter. But Palantir's U.S. commercial customer count nearly doubled over the last year, with U.S. commercial revenue reaching $159 million last quarter. Palantir is signing deals with companies across multiple industries, including healthcare and consumer goods. Earlier this year, it signed a 10-year expansion deal with Cleveland Clinic to deploy Palantir across more hospitals. It also expanded its deal with General Mills; the Cheerios maker is saving $14 million annually using Palantir. These deals show the breadth of Palantir's software capabilities. Most of its revenue has been driven by the U.S. government, but Palantir is proving to be a viable option for the largest organizations in the world. The long-term growth potential of the business could be massive. Most importantly, Palantir is a profitable business, generating a net profit of $134 million in the second quarter. The stock has had its ups and downs over the last few years, but it will follow the long-term growth of the business. Arm Holdings (ARM 1.72%) is a global leader in the semiconductor industry. Virtually every smartphone in the world uses Arm-based processors, but it has a huge opportunity to expand in the data center market as cloud companies upgrade their infrastructure for AI. The first thing to understand about Arm, and this speaks to why it's a good investment, is the company generates revenue from licensing its chip products to other semiconductor companies and manufacturers. What's more, after licensing a product, it then earns royalties on a per-unit basis on nearly all shipped processors using its technology. This royalty is usually based on a percentage of the chip's average selling price. As you might guess, Arm has a very lucrative business model. In the most recent quarter, its adjusted operating profit was $448 million on $939 million of revenue -- a sky-high margin of 47%. Its Armv9 chip technology is generating a quarter of its revenue right now and is seeing strong adoption, which bodes well for future royalties. In addition to smartphones, management is seeing strong demand for Armv9 in cloud computing. Arm's market share in the cloud has nearly doubled to 15% over the last two years, and it's also gaining share in automotive, consumer electronics, and networking equipment. AI-optimized data centers rely on customized equipment, and that plays to Arm's advantage. The company is increasingly investing to help manufacturers design customized chips, which explains why it is starting to gain market share in the cloud market. Arm has excellent growth prospects in the $600 billion semiconductor industry, and the stock's recent dip gives investors an opportunity to buy shares at a more reasonable price.