of Nasdaq 100 Technology Sector The index has performed well over the past year, posting an impressive 50% gain as the rise of artificial intelligence (AI) has led some of the index's key components to see a ferocious rally.
Stock prices of NASDAQ 100 constituents Nvidia (NASDAQ:NVDA)For example, it has skyrocketed by 221% in the past year. This chipmaker's incredible rise is justified by its impressive growth. His Nvidia's monopolistic position in the AI chip market (holding more than 95% market share, according to some estimates) has significantly boosted the company's sales and bottom line, which are as follows: It is clear from the graph.
Additionally, analysts expect Nvidia's revenue to grow at a healthy 38% annually over the next five years. Analysts estimate that based on NVIDIA's $12.96 per share earnings in the recently ended fiscal year 2024, its bottom line could jump to nearly $65 per share in five years.
Even if Nvidia were to trade at a P/E of 30 times, in line with the Nasdaq 100's price-to-earnings ratio, the stock could jump to $1,950 in five years. This is an increase of 112% from current levels.
However, Nvidia isn't the only stock reaping big profits from the rapid adoption of AI. He has two other Nasdaq stocks that are making the most of the AI opportunity, and he could offer more upside than Nvidia over the next five years.
1. Super microcomputer
super microcomputer (NASDAQ:SMCI) The stock has outperformed Nvidia over the past year, gaining an impressive 505%. Supermicro, known for manufacturing AI server solutions, could continue to outperform his Nvidia over the next five years thanks to its rapidly growing market.
Supermicro's servers are deployed by data center operators to include chips from Nvidia and other chipmakers, reducing operating costs. Supermicro's modular server solutions aim to reduce data center power and cooling costs.
For example, Supermicro launched a water-cooled server solution last May to deploy Nvidia's hugely popular H100 chip, claiming it could reduce data center electricity costs by 40%. Additionally, Supermicro claims its liquid-cooled H100 servers can reduce cooling costs by 86% compared to existing data centers.
Given the large amount of power that AI data centers consume, demand for Supermicro's servers is skyrocketing. This explains why the company's revenue and profits increased significantly last quarter. Supermicro's fiscal 2024 fiscal third quarter sales (three months ended March 31) tripled year-over-year to $3.85 billion. Earnings quadrupled to $6.65 per share.
Supermicro's full-year guidance calls for revenue to increase 110% year-over-year to $14.9 billion at the midpoint. Earnings are expected to jump to $23.69 per share from $11.81 per share a year ago. Even better, analysts expect the company's revenue to grow at an annual rate of 62% over the next five years.
This is not surprising, as the AI server market is expected to grow by 30% annually over the next decade. Supermicro is growing faster than the market it serves, which is why analysts expect the company's revenue growth to remain strong. Assuming that the company's revenue grows at 60% per year over the next five years, its earnings could reach $124 per share in five years.
Multiplying the expected earnings by the Nasdaq 100 earnings multiple of 30 points yields a five-year stock price of $3,720, an increase of 348% from current levels. Even if the growth rate slows down, Supermicro's growth potential is still better than Nvidia. Therefore, for investors looking to buy AI stock now, Supermicro is a strong alternative to his Nvidia, given that we think Supermicro has the potential to outperform his AI stock over the next five years. Looks like an option.
2. Metaplatform
meta platform (NASDAQ:Meta) is another tech giant leveraging the adoption of AI. The social media standard-bearer is integrating AI tools into its various platforms and leveraging its technology to help advertisers get more return on their spend.
CEO Mark Zuckerberg detailed Meta's AI efforts during the company's first-quarter earnings conference call last month. He claimed that MetaAI, the company's generative AI assistant, has been tested by “tens of millions of people” and will be rolled out in more countries and languages in the future.
Meta AI is integrated into WhatsApp, Facebook, Messenger, and Instagram. From enabling creators to generate high-quality images to enabling businesses to suggest products to customers, Meta Platforms is poised to monetize its AI services for the long term. According to Zuckerberg,
On the plus side, we have a strong track record of effectively monetizing our new AI services once they reach scale. Building a big business here means expanding business messaging, introducing advertising and paid content into AI interactions, and allowing people to pay to use bigger AI models and access more computing. There are several ways to do this. Additionally, AI is already helping apps increase engagement, which naturally results in more ads being shown and directly improving ads to provide more value.
The good news for investors is that Meta's AI products are providing a good boost to the company's growth. Sales in the first quarter of 2024 increased 27% year-on-year to $36.4 billion. Meanwhile, earnings grew an impressive 114% year-over-year to $4.71 per share. Meta should be able to maintain healthy revenue growth over the long term as it starts monetizing more of its AI products.
Analysts currently expect the company's profits to grow at an annual rate of 28% over the next five years, which would be significantly higher than the 11% annual profit growth the company posted over the past five years. Based on earnings of $14.87 per share in 2023, Meta's bottom line could jump to $51 per share in five years, based on the potential earnings growth analysts expect.
Multiplying this by the Nasdaq 100's earnings multiple of 30 points yields a five-year stock price of $1,530, an increase of 229% from current levels. Considering the company currently trades at a P/E ratio of 27x, investors are getting a pretty good deal on this Nasdaq stock, which could outperform Nvidia over the long term.
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Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends MetaPlatform and Nvidia. The Motley Fool has a disclosure policy.
2 Nasdaq stocks that could crush Nvidia and deliver bigger profits thanks to artificial intelligence (AI) Originally posted by The Motley Fool
