Alphabet, Nvidia, and Broadcom are the three AI stocks that have been on a tear in recent months, and the future still looks promising for these AI trailblazers heading into the latter part of the year.
The recent surge in AI stocks has been a hot topic of late, with OpenAI’s groundbreaking large language model (LLM) ChatGPT being the catalyst. Many of us have had the chance to get to grips with generative AI, seeing for ourselves what LLMs are really capable of, even with the sometimes restrictive guardrails in place. With the ongoing advancement of AI technology, there’s a good chance that LLMs like ChatGPT will become a more integral part of our daily lives. In addition, the emergence of new AI-related plug-ins could change how we go about our day-to-day tasks.
As thrilling as LLMs are, investors should always keep an eye on valuations. ChatGPT may be the in-thing today, but it’s still uncertain whether it will remain the leading LLM in both the near and distant future. Sometimes, it’s hard to predict which companies will grab the lion’s share of the market. At this stage, it seems that OpenAI has the potential to hold the top spot now and in the years to come.
So, how should one invest in AI? Keep a close watch on new AI technologies and be ready to jump in if the market hasn’t yet recognised its potential. In this article, I’ll use TipRanks’ Comparison Tool to track three AI stocks that are worth keeping an eye on.
Alphabet (NASDAQ:GOOGL) Even before the ChatGPT craze, Alphabet was a FAANG giant long considered a formidable player in the AI sphere. LLMs have captured the hearts of investors, but ChatGPT might just be the first of many influential technologies that we’ll need to get our heads around.
Alphabet’s consumer-facing LLM, Bard, is an intriguing counter to ChatGPT. While it’s challenging to determine which technology is superior at this point (each has its own unique strengths and weaknesses), I think the chances of Alphabet developing an LLM better than ChatGPT are quite high. For this reason, I remain bullish on GOOGL stock.
Alphabet’s shares have partaken in the so-called AI rally, surging after a positive I/O event that unleashed a wave of AI potential. That said, I’d argue that the AI trailblazer still looks relatively inexpensive compared to other tech companies with similar (or even lesser) AI capabilities.
At the time of writing, GOOGL stock trades at 28.7 times trailing price-to-earnings (P/E) or 22.8 times its forward P/E. I believe a P/E multiple in the 20s does not indicate a bubble. In that regard, I continue to view Alphabet as relatively undervalued in the AI universe.
Sure, Alphabet is a giant we’re all familiar with, but it should not be seen as a market leader that only stands to get disrupted from here. If any firm stands to disrupt the current state of Google Search, it’s Google with AI.
What is the Price Target for GOOGL Stock? Analysts have a Strong Buy rating on shares, with 29 Buys and two Holds. The average GOOGL stock price target of $130.77 suggests 5.6% upside potential from here.
Nvidia (NASDAQ:NVDA) Nvidia is the GPU (graphics processing unit) heavyweight that’s seen explosive demand for its products amid the so-called “AI gold rush.” It seems like there aren’t enough GPUs to meet the needs of firms that are keen to get up to speed with the latest and greatest AI technologies
As companies continue to stockpile Nvidia GPUs, it’s easy for demand to skyrocket beyond estimates. However, there’s a good chance that demand could suddenly plummet after the current boom. For Nvidia shareholders, this could mean a sudden loss of recent gains. With an astonishing 187% increase year-to-date, I’m neutral on the stock, primarily due to the entry price, which is higher than I’d be willing to pay.
Nvidia is likely to remain the dominant player in the AI race and it’s a worthy newcomer to the $1 trillion market cap club. As the company launches new chips tailored for AI, it seems likely that firms will be quick to place their bulk orders again.
Although I believe the rise of AI is sustainable, I’m uncertain about when the next downturn will hit. High-end hardware products can be quite cyclical. In that respect, I’d much prefer to wait for the stock to come down rather than “chasing” it at around the $400 level.
Recently, Nvidia seems to be partnering with capable companies and investing in other promising players in the AI sector (think Cohere). With the company increasing its AI exposure, it’s tempting to be bullish about the company. However, the stock is just too hot to handle for most value hunters.
What is the Price Target for NVDA Stock? While I’m not comfortable with Nvidia’s valuation, many analysts believe the good times will keep rolling. The stock has a Strong Buy rating, with 32 Buys and four Holds. The average NVDA stock price target of $449.92 suggests 9.7% upside potential from here. According to analysts, it may not be too late to invest in the GPU leader.
Broadcom (NASDAQ:AVGO) Broadcom has seen a significant AI-driven surge of its own, pushing shares up a remarkable 54.9% year-to-date. Undoubtedly, the chance to buy the stock with a 4% yield and P/E in the teens is gone, but that doesn’t mean Broadcom’s heyday is over.
The stock gained an additional 6.3% on Monday, pushing shares above the $850 mark, following EU regulatory approval to acquire software company VMWare (NYSE:VMW) for $61 billion. As the deal inches closer to completion, it’s hard not to be excited about Broadcom as a potential contender to win the AI race on both the hardware and software fronts (the VMWare deal provides Broadcom a significant “moat” in the visualisation software space).
At 26.5 times trailing price-to-earnings, Broadcom looks like a bargain compared to Nvidia. As a reasonably priced chip name with a relatively high dividend yield (2.3%), AVGO stock strikes me as one of the high-momentum stocks that I’d not be hesitant to “chase.” Therefore, I remain bullish on Broadcom, with the $1,000 mark seeming within reach.
What is the Price Target for AVGO Stock? Broadcom is a Strong Buy on Wall Street, with 14 Buys and two Holds assigned in the past three months. However, the average AVGO stock price target of $860.93 suggests just 1.2% upside potential.
Conclusion for AI Investors A technology we’ve yet to hear of, or a competing product (such as Bard or Bing), could be the LLM that surpasses ChatGPT. In any case, investors should get comfortable with the idea of diversifying their AI investments. There will be a few big winners, but it’s difficult to predict at this stage.
