More than three decades ago, the advent and proliferation of the internet changed the corporate growth landscape. For decades, investors waited, often impatiently, for the next game-changing technology to meaningfully lift growth trajectories. Artificial intelligence (AI) has answered the call.
The AI infrastructure build-out is a multitrillion-dollar opportunity that’s piquing the attention of retail investors and Wall Street professionals alike. But for two foundational trillion-dollar AI hardware stocks, the party may be just getting started. According to select Wall Street analysts, Nvidia (NVDA) and Micron Technology (MU) may offer up to 136% upside from their Sept. 11 close.
Nvidia: Implied upside of 136%
There’s arguably no AI stock that Wall Street analysts like more than Nvidia. As of this writing, 58 of the 61 covering analysts have a buy- or strong buy-equivalent rating on the stock. But in terms of bullishness, no one tops analyst Simon Leopold at Raymond James (RJF), who expects Nvidia to reach $515 per share. If accurate, Nvidia still offers 136% upside for its shareholders.
Like most investors, analysts are in awe of Nvidia’s triple-digit Data Center sales growth. This growth reflects the superior compute capabilities of the company’s graphics processing units (GPUs), as well as the veritable monopoly its GPUs hold in enterprise AI-accelerated data centers.
But Leopold is particularly intrigued by the potential for Nvidia to translate the insatiable demand for AI hardware into sales once supply issues are remedied. Despite the best efforts of contract manufacturers to expand their production capacity, supply shortages of key hardware components persist on several levels. If Nvidia secures additional manufacturing capacity, its sales should continue to soar.
Leopold also believes that sales growth from non-hyperscalers can outpace sales growth from hyperscalers, leading to sustained demand and exceptional pricing power for Nvidia’s GPUs.
Micron Technology: Implied upside of 126%
But Nvidia isn’t the only trillion-dollar AI infrastructure provider with triple-digit upside potential. Melius Research’s Ben Reitzes believes memory and storage solutions titan Micron can soar to $2,200 per share, representing upside of 126% from where shares closed on Sept. 11.
Similar to Nvidia, Micron has locked down a critical role as a hardware supplier for AI-accelerated data centers. The company’s high-bandwidth memory (HBM) is packaged with GPUs to facilitate high-speed data transfers and train large language models. Demand for HBM is off the charts (just as it is with GPUs), leading to otherworldly pricing power and a parabolic climb for Micron’s gross margin.
Reitzes has increased his firm’s price target twice since late April, with the most recent increase following Micron’s announcement that it had secured at least $100 billion in strategic customer agreements (SCAs) through 2030 for its memory solutions.
Locking in long-term supply deals at known prices is a big deal for Micron. Historically, memory has been a commoditized product, with the underlying companies struggling not long after they gain premium pricing power. Locking in its SCAs up to four calendar years in advance, coupled with persistent supply shortages for HBM, DRAM, and NAND flash, should help Micron sustain its pricing power and historically elevated margins.
— Sean Williams
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Source: The Motley Fool
