2023 will surely be looked upon as the year AI went mainstream. Fueled by the rise of ChatGPT, the tech has captured the public’s imagination and it is a topic constantly hogging the headlines.
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Naturally, investors have also tuned in to the conversation, and AI has been driving the year’s rally in tech stocks. But there are already murmurings regarding a bubble in all things AI, so the question is: has the opportunity already played out this year? Not entirely, appears to be the opinion of one investing legend.
Billionaire Ken Fisher concedes that this is no longer a ‘ground floor’ moment for those looking to ride the AI trend. However, he also does not see the current state as a bubble. Fisher believes that the rise of Big Tech this year is “mostly about quality growth and rebounding from its outsize 2022 bear market slide.”
“It is not tiny start-ups in Silicon Valley that are driving AI,” he adds. “It is the big guys in chips, software, data analytics, search and more with pole position.
Still, the Fisher Investments founder, who has a net worth valued at ~$6.7 billion, thinks “some AI exposure may be beneficial,” although that should only partially inform an investor’s decision to load up on a promising equity. “Instead,” Fisher goes on to say, “intelligent investing means seeking high-quality growth. If AI partly drives that growth, OK.”
With all this as backdrop, we thought we’d take a look at two names sitting in Fisher’s portfolio that boast all the qualities he refers to: top-quality, growth and some exposure to AI. Using the TipRanks platform, we can also see whether the Street’s stock experts agree these are good names to own 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 that specializes in customer relationship management (CRM). The firm develops software and applications that enable its clients to enhance the level of service they provide to their own customers. Its offerings encompass various areas such as sales, analytics, and automation, as well as tailored customer service, community management, and relationship intelligence. With a market cap surpassing $206 billion, the company proudly claims to be the leading CRM platform for businesses worldwide.
You can get an idea of the size involved by looking at the most recent earnings report, for the first quarter of fiscal 2024 (April quarter). The company generated revenue of $8.25 billion, amounting to an 11.3% year-over-year increase, while beating the Street’s forecast by $80 million. Furthermore, Salesforce maintains consistent profitability, with EPS of $1.69 in FQ1, exceeding analyst expectations by $0.08.
Salesforce has been making use of AI for several years and began incorporating the tech into its platform in 2016 with the introduction of Salesforce Einstein. It has recently stepped up its efforts with the introduction of AI Cloud, an offering that combines AI, data, analytics, and automation that the company touts as providing “trusted, open, real-time generative AI that is enterprise ready.”
All of this must be appealing to Fisher, who remains heavily invested. His money management firm currently owns 14,022,629 shares of CRM, which have a market value just under $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 $290B+ by 2026; 2) the company seems to have settled into an effective leadership rhythm between CEO Marc Benioff, President & COO Brian Millham, and CFO Amy Weaver; 3) Salesforce just finished the first quarter of what should be a multi-year transformation with both short-term and long-term restructuring to drive higher margins and better efficiencies; 4) the company has interesting opportunities to streamline its sales processes with more suite selling across its clouds; and 5) the company is only just beginning to address its opportunities to leverage the recent advancements in large neural networks and AI for organic product innovation.”
Walravens adds an Outperform (i.e., Buy) rating to his reasons, and completes his stance with a $275 price target, indicating his confidence in an upside of 30% for the next 12 months. (To watch Walravens’ track record, click here)
Turning now to the rest of the Street, where CRM claims a Moderate Buy consensus rating, based on 22 Buys, 10 Holds and 1 Sell. The forecast calls for 12-month returns of 13%, considering the average target stands at $239.1. (See CRM stock forecast)
Nvidia (NVDA)
So, we’re talking high-quality, growth and AI, right? Then it’s safe to say, Nvidia will be the first name that springs to mind for many. The semiconductor giant has been a leading chipmaker for years now, known for its GPUs – graphics processors – that are used in gaming, which used to account for the majority of its revenues, and for data center use, which eventually overtook the gaming segment as the main breadwinner.
Due to the quality of its offerings, the company has practically cornered the AI hardware industry. Most AI applications currently depend on Nvidia hardware, as it boasts a 95% dominance of the machine learning GPU market, according to a recent report from CB Insights.
Nvidia has been known for some tremendous growth, but it has also been affected by the slowing economy. Nevertheless, in the first quarter of fiscal 2024 (April quarter), the company beat expectations on both the top-and-bottom line. Although revenue declined by 13.3% year-over-year to $7.19 billion, the figure still beat the analysts’ forecast by $670 million. Likewise, adj. EPS of $1.09 beat the Street’s call by $0.17.
Those results were good, but the company left the best for an outlook that stunned Wall Street. With demand for its AI chips surging, Nvidia guided for FQ2 revenue of $11 billion, plus or minus 2%. Consensus was looking for just $7.11 billion.
These results, on top of the AI hype, have helped the stock get a place at the table of the exclusive $1 trillion market cap club, with the shares having gained 190% year-to-date.
It wouldn’t be too much of a stretch to estimate Fisher is pleased with his NVDA investment. He is the owner of over 10 million shares, and these are presently valued at more than $4.27 billion.
Nvidia is well-known for its hardware, but it is no slouch on the software front, either, as highlighted by Rosenblatt analyst Hans Mosemann.
“Nvidia stands in a league of its own when it comes to software compilers, vertical market optimizations, and accelerator libraries. These strengths easily compensate for many of the hardware specifications offered by new AI chip companies. Software subscriptions, royalties, and other sources will increasingly contribute to Nvidia’s revenues in the coming years, particularly as we transition to autonomous driving, Omniverse AI worlds, and similar technologies,” the 5-star analyst explained. “We expect tech to continue to lead the market higher and we also believe that the AI enthusiasm is not over-hyped. NVDA’s recent sequential guide was telling. We think this rally has plenty of runway as investor risk appetites continue to climb the wall of worry.”
The year-to-date gains are not an issue for Mosesmann, then. He has a Buy rating on the shares to go alongside a $600 price target. The implication for investors? Additional upside of 41% from current levels. (To watch Mosesmann’s track record, click here)
Most on the Street remain in NVDA’s corner. The stock’s Strong Buy consensus rating is based on 28 Buys vs. 2 Holds and 1 Sell. The shares are priced at $423.47 and the $471.8 average target implies one-year share appreciation of 11%. (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 intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
