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Missed Out on Nvidia? My Best AI Stock to Buy and Hold

Businessman holding AI cloud
Image source: Getty Images

Written by Aditya Raghunath at The Motley Fool Canada

Shares of Nvidia (NASDAQ:NVDA) have been on an absolute tear in the past two decades. It has surged by 250% in the past year, 20,033% in the last 10 years and a staggering 46,000% in the last 20 years.

It suggests that a $1,000 investment in Nvidia stock 20 years ago would be worth more than $460,000 today. Valued at a market cap of US$2.35 trillion, Nvidia is now the third-largest company in the U.S.

The recent rally in Nvidia stock can be attributed to the optimism surrounding the artificial intelligence (AI) megatrend. Let’s see if NVDA stock can continue to move higher and crush broader market returns in the upcoming decade.

Cathie Wood issues a warning to Nvidia investors

Several investors believe Nvidia stock is in a bubble and will pull back significantly from its current level, as it has run too high too fast. As a result, its stock gains are likely to decelerate within the next 12 months.

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Cathie Wood, one of Wall Street’s most popular investors and the founder and chief executive officer of Ark Invest, has consistently reduced the fund’s stake in Nvidia in the last six months.

In an investor note, Ark Invest explained, “While we believe Nvidia is likely to remain a prime enabler and beneficiary of continued breakthroughs in AI, many other potential beneficiaries are not well understood, may sell at much lower valuations, and potentially could deliver significant revenue and earnings surprises on the high side of expectations.”

Alternatively, investors should also understand that the company’s growth story is far from over. Nvidia is likely to remain an AI leader in the foreseeable future. For instance, Nvidia stock trades at 41.7 times forward earnings, which is quite steep. However, analysts forecast shares to rise by 35% annually in the next five years.

Nvidia’s parabolic gains will normalize sooner rather than later. But there are plenty of AI stocks you can consider buying right now and benefit from inflation-beating returns in 2024 and beyond.

What is the target price for UiPath stock?

A company operating in the robotic process automation market, UiPath (NYSE:PATH) is valued at US$13 billion by market cap. Shares of the company went public at US$56 in early 2021 and soon touched an all-time high of US$85. Today, it trades 73 % below all-time highs, and the pullback allows shareholders to buy a quality stock at a discount.

UiPath offers enterprise-facing tools that can automate repetitive tasks such as invoice processing, data entry, and customer onboarding. In fiscal 2021 (which ended in January), the company grew its sales by 81% year over year, while in the next two years, these numbers decelerated to 47% in 2022 and 19% in 2023 due to a sluggish macro environment and lower software spending.

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However, a Gartner research report states that UiPath accounts for 36% of the global RPA market. Moreover, the RPA market is forecast to expand by 20% annually through 2030. If UiPath can maintain its market share, it should end 2030 with sales of US$7.2 billion.

Similar to other asset-light companies, UiPath should grow its earnings at a faster pace than sales. If its adjusted earnings grow by 25% annually, its earnings per share should expand to US$6.2 per share in fiscal 2030. If the stock is priced at 30 times trailing earnings, it should trade at US$186 per share in March 2030, indicating an upside potential of over 700% from current levels.

The post Missed Out on Nvidia? My Best AI Stock to Buy and Hold appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Gartner, Nvidia, and UiPath. The Motley Fool has a disclosure policy.

2024