In the past couple of years, artificial intelligence (AI) has emerged as one of the most important themes in the investment world. While the initial frenzy about AI stocks seems to have somewhat abated, investing in fundamentally strong stocks with well-proven AI technologies can still prove to be a smart move -- considering that many of these technologies are now at the forefront of driving efficiency and productivity.
Two AI stocks, which certain analysts believe to be upcoming blockbusters, are AI server maker Super Micro Computer (NASDAQ: SMCI) and electric vehicle (EV) player Tesla (NASDAQ: TSLA) .
Super Micro Computer
Super Micro Computer has been on a roller-coaster ride in 2024, soaring from $280 at the start of the year to a high of $1,229 in March before crashing to $569.49 as of Aug. 13 on a weak quarterly earnings report. While the company badly missed the bottom-line estimate, this is most likely a temporary glitch in its long-term growth story.
Wall Street analysts have pegged the consensus-target price for the company at $772.92, implying an upside potential of just around 36%. However, analyst Ananda Baruah at Loop Capital is far more optimistic and expects the company's shares to grow almost 165% to reach $1,500 per share. While the latter estimate seems high, there are still solid chances for the stock to soar in the coming years.
Super Micro's "building block," or modular and open-architecture approach to designing high-performance computing systems (server and storage), has played a major role in establishing the company as a prominent player in the AI-infrastructure space. The company is known for its highly customizable, adaptable, scalable, and energy-efficient server and storage solutions, which are being used extensively in the training and inferencing of large language models (LLMs).
The company has established close relationships with semiconductor players such as Nvidia and Advanced Micro Devices , giving it early access to advanced chips, which in turn plays a critical role in enabling the company to secure new strategic customers.
Super Micro has emerged as a leading direct-cooling technology (DLC) player, which is increasingly becoming a critical component of thermally intensive and power-hungry, high-performance computing and AI applications. The company's margins have come under pressure mainly due to higher shipping costs associated with a faster-than-expected increase in demand for Super Micro's DLC components.
The company expects margins to gradually rise in the next 12 months as manufacturing efficiencies improve. The company also expects the introduction of higher-value offerings, such as Datacenter Building Block Solutions, to prove margin accretive in the long run.
Tesla
Shares of Tesla are down by 20% so far this year despite gaining over 40% from a low of $138.80 in May. Once a stock market darling, the stock has been pounded by what some analysts call an "EV recession " amid a difficult macroeconomic environment and increasing competitive pressures.
Results for its fiscal 2024's second quarter (ended June 30) were also not encouraging, with profitability sharply affected by pricing challenges and restructuring charges associated with employee layoffs. Investor sentiment was also affected by CEO Elon Musk delaying the unveiling of the robotaxi model (which will be based on Tesla's full self-driving (FSD) technology) from Aug. 8 to Oct. 10.
Despite these challenges, Gene Munster, co-founder at Deepwater Asset Management, remains confident about Tesla's potential to become a $3 trillion market-capitalization company in the foreseeable future. This implies a dramatic upside of nearly 366% from its share price as of Aug. 13, 2024.
For some time, Elon Musk has been telling investors to value Tesla not as a mere automotive company but more as an AI company, thanks to its progress in developing the FSD technology. A longtime supporter of Tesla's vision and business strategy, Ark Invest CEO Cathie Wood expects the company's fully autonomous robotaxi technology to be a catalyst for a tenfold increase in the company's share price.
Hence, while the investor community is still skeptical about the real-world performance of self-driving vehicles, Cathie Wood is very confident about the technology and expects the autonomous taxi platform to prove to be an $8 trillion to $10 trillion global-revenue opportunity. With Tesla expected to capture nearly half of this market opportunity, Cathie Wood believes that this opportunity should also be better reflected in the company's valuation.
The FSD capability is expected to transform the company's fleet of vehicles into a fully autonomous ride-hailing service that can be contacted through the company's application. Unlike other FSD competitors that are focusing on developing localized solutions leveraging high-density mapping, Tesla claims to be working on a generalized solution that can work anywhere.
Besides FSD, Tesla's energy-storage business is also a solid positive for the company. The energy-storage business reported record profits in Q2. Musk sees huge potential in the power grid storage business. Tesla's integrated energy-storage solution, which includes power electronics, site-level control, and software, can play a major role in ensuring power-grid stability and optimizing power-plant operations.
Undoubtedly, Tesla is currently a high-risk investment choice for retail investors. However, Musk is confident that the company will have unsupervised FSD technology by the end of 2024 or at least by the end of 2025. Plus, the company is also increasingly focusing on launching more affordable car models , which may help it start penetrating the affordable EV segment.
Hence, considering the big picture, astute investors can consider picking up a small stake in the company now, especially when it is trading at just under 7 times sales , far lower than its five-year average of about 9.6.
Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Tesla. The Motley Fool has a disclosure policy .
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