Forget Nvidia: 2 Hyper-Growth AI Stocks Up 243%, According to Select Wall Street Analysts

Investors have waited decades for a new innovation or trend to emerge that could do what the Internet did about three decades ago for corporate America. After much patience, the artificial intelligence (AI) revolution seems to have answered the call.

The appeal of AI is the ability of software and systems to learn without the need for human intervention. This ability to evolve over time and become more adept at assigned tasks, if not learn entirely new skills, gives the technology an unlimited long-term ceiling.

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In less than 18 months, AI euphoria has grown Nvidiahis (NVDA 1.51%) market cap of more than $3 trillion and required a historic 10-for-1 stock split. But in the wake of such a monstrous performance in Nvidia, some Wall Street analysts have turned their attention to other AI hypergrowth stocks that , in their opinion, offers an advantage of up to 243%.

Headwinds are mounting for Wall Street’s AI darling

While you’ll find no shortage of Wall Street analysts who still see growth potential in Wall Street’s beloved AI, there’s no denying that headwinds are starting to build for Nvidia.

Historical precedent is easily the biggest red flag. For 30 years, there hasn’t been an innovation or trend that avoids a startup bubble. This means that investors usually overestimate the adoption and utility of new technologies. The fact that most companies currently do not have a clear plan on how they will use AI to increase their sales and increase their profits is proof that AI will likely be in the next long line of bubbles. start.

Beyond history, it is impossible to ignore the outside and internal competitive pressure that Nvidia will have to face. Despite controlling around 98% of the data center graphics processing unit (GPU) market share in 2022 and 2023, Nvidia’s share of the pie is likely to shrink as new AI-GPUs enter the arena.

In addition, its four largest customers by net sales, all of which are members of the “Magnificent Seven,” are developing AI chips for use in their data centers. Even if Nvidia’s AI-GPUs retain their computing advantages, which is highly likely, these four top customers will use their in-house chips as a complement to Nvidia’s hardware. This will reduce future opportunities for Nvidia to win valuable data center “real estate” from America’s most influential businesses.

Finally, Nvidia’s adjusted gross margin fell in its fiscal second quarter (ended July 28) for the first time in two years. The lack of AI-GPU fueled the company’s pricing power and rapid gross margin expansion. But as that shortage diminishes, Nvidia’s pricing power and its gross margin should decline.

Instead of focusing on Nvidia, select Wall Street analysts see a more prolific upside in the next two high-growth AI stocks.

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Snowflake: A default advantage of 93%

The first supercharged AI stock that at least one Wall Street analyst sees beating Nvidia is a cloud-based data warehouse Goliath Snowflake (SNOW 0.08%). Analyst Kash Rangan al Goldman Sachs he thinks Snowflake can hit $220 a share, which would result in a gain of about 93%, depending on where August ended.

Rangan added Snowflake to Goldman’s “Condemn List” in July with the belief that the company is ideally positioned for the next phases of the AI ​​revolution — the stage(s) where AI platforms and applications benefit the most.

The lure for Snowflake has long been its superior growth rate and well-defined competitive advantages. Its infrastructure is placed on top of the most popular cloud infrastructure service platforms to remove data sharing constraints for its customers.

Additionally, it eschewed the traditional subscription model in favor of a pay-as-you-go platform that pays customers based on how much data they store and how many Snowflake compute credits they use. There’s no doubt that this cost transparency resonates with its customers.

Unfortunately, the growth rate of snowflakes has cooled considerably. Year-over-year organic growth rates, which just recently topped 70%, in the second quarter of fiscal 2023 (ended July 31, 2022) are now below 30%. While the company has an impressive $5.2 billion under its belt and continues to add bigger fish to its client pool, the valuation premium it once commanded no longer makes sense.

For Snowflake to approach Rangan’s price target, it will need to significantly improve its adjusted profitability and stabilize its year-over-year sales growth in the 25% range.

Super Micro Computer: A default advantage of 243%

A second hypergrowth AI stock with a tantalizing upside, based on a Wall Street analyst forecast, is a specialist in rack servers and storage solutions. Super Micro Computer (SMCI -2.48%). Loop Capital’s Ananda Baruah sees Super Micro shares eventually hitting $1,500, which would more than triple where they closed on Aug. 30.

Loop’s price target for Super Micro is based on the company’s strong position in the AI ​​server market. Companies looking to gain a first-mover advantage in the AI ​​space will be forced to spend aggressively on the infrastructure needed to do so.

We’ve certainly seen evidence that demand for Super Micro servers is incredibly strong. After net sales growth of 110% in fiscal 2024 (ended June 30), the midpoint of the company’s sales guidance for fiscal 2025 ($28 billion) implies revenue growth of 87% for the current year. Despite the Wall Street consensus calling for earnings per share of $45 in fiscal 2026 (ending June 30, 2026), Super Micro is currently valued at a forward price-to-earnings (P/E) ratio of less than 10.

Things seem almost too good to be true – and they might be.

Last week, renowned short seller Hindenburg Research released a report claiming, among other things, evidence of accounting manipulation at Super Micro Computer. This short seller report was followed a few days later by Super Micro delaying the filing of its annual report. While this is not an admission of wrongdoing, nor does it validate Hindenburg’s conclusions, it shakes up at a sensitive time for the company.

In addition, Super Micro Computer failed to live up to high growth expectations before. Aggressive sales growth forecasts during the initial cloud computing boom of the mid-2010s have not been met. Given what history tells us about future innovations and the time they take to mature, skepticism seems well-warranted in Super Micro’s case, despite its historically cheap valuation.