AI – artificial intelligence – has been stirring the technological pot lately. With the release of ChatGPT and the explosion of AI-powered natural language in online research, content creation, and even image editing, it has become clear that AI is the next frontier of the technology space.
A sudden boom like this will always bring opportunities. New jobs and new products, of course, but also new opportunities in the stock market. AI-related companies, either directly or through connections to leading apps such as ChatGPT, will find or forge new paths, and they will be eager for investors.
Investors, however, will need to choose carefully where to place their funds. Some AI-related companies are more equal than others, and careful sorting is required before buying. This brings us to Smart Score, TipRanks’ AI-powered tool that collects and aggregates all data on over 8,400 publicly traded companies. shares and rates them according to 8 factors strongly correlated to future outperformance. The combined score is given on a simple linear scale, from 1 to 10, with a “perfect 10” indicating a title that clearly deserves further consideration.
Combining a Perfect 10 with a strong connection to AI/ChatGPT should be a solid starting point for today’s technology investments. Here are two such stocks, presented with comments from Wall Street analysts.
Perion network (PERI)
We’ll start with Perion Network, an innovative leader in the global digital advertising industry. The company is focused on increasing customer engagement, through ad search, social media and video/CTV content, and estimates its potential market at $300 billion or more. These are not peanuts, so a great opportunity for Perion.
The company is already part of a strategic relationship with Microsoft and its search engine Bing, which leads to its direct connection to AI. Microsoft has publicly bet on AI and ChatGPT as the basis for improving and upgrading Bing; Perion and Bing are working together in a strategic search engine advertising partnership. In fact, Perion’s revenue shows a strong correlation with the number of Bing users – and the integration of ChatGPT into Bing has already had a significant effect on Perion’s bottom line.
This was visible in Perion’s latest quarterly report, for 1Q23 – the first full quarter after the release of ChatGPT. The company saw a 16% year-over-year increase in total revenue, from $125.3 million to $145.2 million. This total included year-over-year increases of 16% in “display ad revenue” and 15% in “search network ad revenue.” Ultimately, Perion’s non-GAAP net income increased 44% year-over-year to $29.9 million; this gave an EPS figure of 60 cents per share, up 36% from the 44 cents reported in the year-ago quarter.
In addition to solid year-over-year growth, the company’s results also exceeded expectations. Perion’s total revenue exceeded guidance by $3.8 million and non-GAAP EPS was 10 cents higher than estimated.
Video revenue provided a significant portion of Perion’s growth, growing 26% year-over-year. Video revenue accounted for 44% of total display ad revenue, up from 41% in the prior year quarter. This growth was supported by a 63% year-over-year increase in the number of video platform publishers.
When it comes to PERI’s smart score, we find that Perion ticks almost all the boxes. The stock has strong technical and fundamental factors, but the biggest boost comes from sentiment metrics. Financial bloggers are 100% positive on PERI, compared to an industry average of 67%; news sentiment is also 100% positive; Crowd wisdom on PERI registers “very positive” as individual investors have increased their stock holdings by 42% in the past 30 days. And, among hedge funds tracked by TipRanks, PERI holdings increased by more than 344,000 shares last quarter. This all equates to a Perfect 10.
Analysts at The Street are also optimistic. Technology industry expert Laura Martin of Needham sums up Perion’s outlook: “Of all the public AdTech companies, PERI has the best short-term advantage of ChatGPT as it distributes Bing (owned by Microsoft) in 60 countries including USA, Canada, India, UK etc. In 1Q23, PERI reported nearly 30mm of monetized searches per day, out of a total of 150mm of searches. PERI gets a revenue share of Bing advertising revenue from its customers in these countries. In 1Q23, PERI reported that 45% of its total turns came from its Bing search affiliates, up 15% year-over-year. »
Martin’s comments confirm his Buy rating on the stock, while his price target of $42 indicates confidence in a 37% appreciation in the stock over the next 12 months. (To see Martin’s track record, Click here.)
There are 5 recent analyst reviews on Perion and they break down 4 to 1 in favor of Buy over Hold, to give the stock its consensus Strong Buy rating. The shares are currently trading at $30.63 and the average price target of $40.20 implies a one-year upside potential of 31%. (See Perion Stock Forecast)
Nvidia Corporation (NVDA)
For the second title on our list, we’re going to shift gears slightly and take a look at one of the global leaders in the semiconductor chip industry. Nvidia has built a solid reputation in the graphics processing unit (GPU) segment and holds around 70% market share in these high-end chips. The high market share of GPUs has greatly benefited Nvidia in recent years; GPUs are in high demand by professional graphic designers and serious online gamers. In addition, the GPU’s high computing capacity has found application in AI and machine learning systems, as well as data processing, “smart” home and city technology, and IoT.
That’s the good news. The bad news is that, post-pandemic, Nvidia’s gaming segment slid for much of fiscal 2023, hurting the company’s revenue and profits. Over the past quarter, the company has reported a rebound in gaming, and more importantly, it has detailed ongoing moves in the AI industry, which puts the company in good stead to benefit from this age-old trend.
In fiscal 2023, which ended January 29 this calendar year, the company posted revenue of $26.97 billion, essentially flat from the reported $26.91 billion. in fiscal 2022. Nvidia’s sales growth fell from the second fiscal quarter, and in the last reported quarter, fiscal 4Q23, the company’s revenue of $6.05 billion dollars, was down 21% year over year. Ultimately, non-GAAP EPS was reported at 88 cents, compared to $1.32 in the prior year period. It should be noted, however, that the top and bottom results exceeded expectations.
On the AI side, Nvidia has made its AI platform available as a cloud offering in partnership with major cloud software providers, including Microsoft and Google. AI chips dominate Nvidia’s data center business, which is responsible for the bulk of revenue, and saw an 11% year-over-year increase to $3.62 billion in the fourth quarter . The automotive and robotics segment of Nvidia’s business, which is also AI-related and includes cloud access, posted year-over-year gains, growing 135% from 4Q22 to reach $294 million.
Investors bought into the NVDA AI story, and shares are up 114% year-to-date. This aligns well with the strong sentiment factors of the “Perfect 10” smart score. Nvidia scores high on Blogger Sentiment (71% positive), Crown Wisdom (5.6% in the last 30 days), and News Sentiment (97% positive). Hedges increased its shares in Nvidia by 2.5 million last quarter, a clear sign of confidence.
It’s no wonder, then, that this stock caught the eye of HSBC analyst Frank Lee, who is somewhat taken aback by the opportunity at stake. He writes: “We are shocked by the pricing power from Nvidia on AI chips which we believe leads to higher earnings, higher valuation… Given Microsoft’s aggressive deployment of ChatGPT as well as other AI initiatives by US cloud service providers and Chinese, we expect AI GPUs to generate additional revenue of $5.2 billion and $11.1 billion in FY1/24 and FY1/25 …is one of the main beneficiaries of the AI trend. »
Lee continues to rate NVDA as a buy, and he sets a price target of $355 to suggest a 13% upside in the coming months. (To see Lee’s track record, Click here.)
Of the 37 recent analyst opinions recorded for NVDA, 29 are Buy and 8 Hold – for a strong consensus rating of Buy. The rapid rise in stocks this year, however, pushed the trading price above the expected average price; Nvidia is trading at $312.64, but analysts’ average price prediction currently stands at $296.29. (See NVDA Inventory Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.