2023 will surely be seen as the year that AI went mainstream. Fueled by the rise of ChatGPT, the technology has captured the public's imagination and is a topic that constantly grabs headlines.
Of course, investors have also been listening to the discussion, and AI has fueled this year's rally in tech stocks. But there are already rumors of a bubble in all areas of AI. So the question is: has the opportunity already been exhausted this year? Not quite, seems to be the opinion of an investment legend.
Billionaire Ken Fisher admits this is no longer a “ground floor” moment for those looking to jump on the AI trend. However, he does not see the current situation as a bubble either. Fisher believes Big Tech's rise this year was “primarily driven by qualitative growth and the rebound from its outsize bear market decline in 2022.”
“It's not the small startups in Silicon Valley that are driving AI,” he adds. “It's the big players in chips, software, data analytics, search and more that are taking the lead.
Still, the Fisher Investments founder, who has a net worth of about $6.7 billion, thinks “some AI exposure could be beneficial,” though it only partially influences an investor's decision should buy into a promising stock. “Instead,” Fisher continues, “smart investing means striving for quality growth.” If AI is partially driving that growth, then fine.”
With that in mind, we thought we'd take a look at two names in Fisher's portfolio that exhibit all the qualities he mentions: top quality, growth, and some involvement in AI. Using the TipRanks platform, we can also see if the Street's equity experts think these are good names right now. Let's take a closer look.
Salesforce, Inc. (CRM)
The first Fisher-backed name we'll look at is Salesforce, a software giant specializing in customer relationship management (CRM). The Company develops software and applications that enable its customers to improve the level of service they provide to their own customers. The offer covers different areas such as sales, analytics and automation as well as customized customer service, community management and relationship intelligence. With a market capitalization of over $206 billion, the company proudly claims to be the leading CRM platform for businesses worldwide.
You can get an idea of the size by looking at the most recent earnings report for the first quarter of fiscal year 2024 (April quarter). The company generated $8.25 billion in revenue, up 11.3% year over year, while beating the Street's forecast by $80 million. Additionally, Salesforce maintains steady profitability, with earnings per share of $1.69 in the first quarter, beating analyst expectations by $0.08.
Salesforce has been using AI for several years and began integrating the technology into its platform in 2016 with the launch of Salesforce Einstein. The company recently ramped up its efforts with the launch of AI Cloud, an offering that combines AI, data, analytics and automation and touts the company as “trustworthy, open, real-time generative AI that's enterprise-ready.”
All of this must be attractive to Fisher, which remains heavily invested. His wealth management firm currently owns 14,022,629 shares of CRM, which has a market value of nearly $3 billion.
Salesforce also has a fan in JMP analyst Patrick Walravens, who highlights the various reasons why the stock represents an “attractive opportunity for long-term capital appreciation.”
These reasons include: “1) The company is the clear leader in a very large market estimated to reach $290 billion+ by 2026; 2) The company appears to have settled into an effective leadership cadence between CEO Marc Benioff, President and COO Brian Millham, and CFO Amy Weaver. 3) Salesforce just completed the first quarter of a multi-year transformation involving both short- and long-term reorganizations to drive higher margins and better efficiencies; 4) The company has interesting opportunities to streamline its sales processes through more suite sales across its clouds; and 5) the company is just beginning to leverage its ability to leverage recent advances in large neural networks and AI for organic product innovation.”
Walravens adds an Outperform (ie Buy) rating to his reasons and completes his stance with a price target of $275, showing he is confident there is upside potential of 30% over the next 12 months. (To view Walravens' track record, click here)
Now turning to the rest of the road where CRM receives a consensus rating of Moderate Buy based on 22 buy, 10 hold and 1 sell. The forecast calls for a 12-month return of 13%, with the average target at $239.1. (See CRM Stock Forecast)
So we're talking about high quality, growth and AI, right? Then it's safe to say that Nvidia will be the first name that springs to mind for many. The semiconductor giant has been a leading chipmaker for years, known for its GPUs — graphics processing units — which are used in gaming and used to make up the majority of its sales, as well as for use in data centers that eventually overtook gaming as the main earner.
The company has practically cornered the AI hardware industry due to the quality of its offerings. According to a recent report by CB Insights, most AI applications currently rely on Nvidia hardware as the company has a 95 percent dominance in the GPU machine learning market, according to a recent report by CB Insights.
Nvidia is known for its tremendous growth, but it has also been impacted by the slowing economy. Still, the company beat expectations in both revenue and earnings for the first quarter of fiscal 2024 (April quarter). Though revenue fell 13.3% year over year to $7.19 billion, that figure still beat analysts' forecast by $670 million. Likewise adj. Earnings per share came in at $1.09, beating the Street's call by $0.17.
Those results were good, but the company saved the best for an outlook that stunned Wall Street. Given rising demand for its AI chips, Nvidia forecast second-quarter revenue of $11 billion, up or down 2%. The consensus was only $7.11 billion.
Those results, added to the AI hype, have helped earn the stock a spot in the exclusive $1 trillion market cap club, with shares up 190% year-to-date.
It wouldn't be too far-fetched to estimate that Fisher is happy with his NVDA investment. He is the owner of over 10 million shares currently valued at more than $4.27 billion.
Nvidia is known for its hardware, but the company is also not a problem when it comes to software, as Rosenblatt analyst Hans Mosemann emphasizes.
“Nvidia is in a league of its own when it comes to software compilers, vertical market optimizations, and accelerator libraries. These strengths easily offset many of the hardware specs being offered by new AI chip companies. “Software subscriptions, licensing fees, and other sources will increasingly contribute to Nvidia's revenue in the coming years, especially as we move to autonomous driving, Omniverse AI worlds, and similar technologies,” the 5-star analyst explained. “We expect the technology will continue to lead the market, and we also believe that the AI craze is not overstated. NVDA's current sequential guide was insightful. We believe there is plenty of room for this rebound as investor risk appetite continues to improve.”
The growth since the beginning of the year is not a problem for Mosesmann. He has a buy rating on the stock and a price target of $600. The implications for investors? Additional upside of 41% from current levels. (To view Mosesmann's track record, click here)
Most on the street stay in the NVDA corner. The Consensus Buy Strong rating of the stock is based on 28 Buy versus 2 Hold and 1 Sell. The stock price is $423.47, and the median target of $471.8 implies an 11% one-year stock appreciation. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.