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.
Image source: Getty Images.
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!
Nvidia: Implied upside of 91%
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.
Image source: Getty Images.
Super Micro Computer: Implied upside of 195%
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.
Tesla: Implied upside of 1,200%
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.
