Nvidia and Microsoft: Mizuho Chooses the Best AI Stocks to Buy in May
Michael Marcus
May 05, 2024, 06:11 PM
Artificial intelligence, especially the newer generative AI technology, made a splash when it hit the scene, and we’re still watching to see just how the waves will break. In the tech world, innovators and companies are working to adapt and incorporate AI into their businesses – but for investors, the question is, how to cash in?
The top analysts at investment firm Mizuho are working to answer that question, and to give a set of concrete recommendations on the best AI stocks to buy in this month of May. And, their answers shouldn’t surprise us; they see market-leading companies reaping solid gains from AI, building on the combination of their existing positions, their existing work in AI, and the potential profits going forward.
Specifically, the analysts are recommending Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT), two of the largest companies on Wall Street, each valued at more than $2 trillion by market cap. These are big names in the tech world, leaders in their niches, and they have proven records for generating profits and returns. Let’s take a closer look at them, through Mizuho’s lens, to find out what investors can expect for the months to come.
We’ll start with Nvidia, the fast-rising leader of the semiconductor chip industry. Nvidia’s stock has gained an amazing 222% over the past year and become one of just four Wall Street firms valued at more than $2 trillion. Nvidia’s sustained gains have come on the back of its dominance in the realm of AI-capable processor chips. The company invented the GPU chip back in 1999, as a high-end processor aimed at the graphics-intensive computer gaming market. The chips proved adaptable and became popular with professional graphic designers. More recently, Nvidia’s GPUs found widespread use in the data center industry and in AI applications.
The close link between Nvidia and AI tech is illustrated by the company that brought us the current generative AI wave, OpenAI. The AI company is an important customer for Nvidia, and just last month, the two companies publicized Nvidia’s release of the new DGX H200 chip to OpenAI. The H200 is Nvidia’s successor product to the successful H100 AI supercomputer chip and represents a substantial increase in high-performance computing capacity.
Nvidia’s business is much wider than just OpenAI, however. The company has collaborations with both Google and Amazon, providing AI-capable hardware to support Google’s open language models and Amazon’s popular AWS subscription cloud. The company released multiple AI-capable products in its last fiscal quarter and provides support for the US government’s National Artificial Intelligence Research Resource program. Nvidia is pursuing its AI business through multiple lines, ensuring that the company does not depend on just one customer.
On the financial side, Nvidia realized $22.1 billion in revenue during its last reported quarter, fiscal 4Q24. That figure was a company record, beating the forecast by $1.55 billion, and representing year-over-year growth of 265%. Of the total, $18.4 billion came from the AI-related data center segment, a figure that made up 83% of the total. The data center business was up 409% from the prior year.
These strong revenues led to strong earnings, with a quarterly non-GAAP EPS result of $5.16. The EPS was up 486% year-over-year and was 52 cents per share better than had been anticipated.
For Mizuho’s 5-star analyst Vijay Rakesh, Nvidia presents a series of strong opportunities, and has high potential to outperform its competition.
“NVDA remains the primary AI/data center accelerator player with strong 90%+ market share, well ahead of main competitors AMD, which is ramping MI300, and Intel, which is shipping Gaudi2/ramping Gaudi3. AI server penetration remains a rather small portion of the overall server market at we believe just ~1% in 2023, with expectations for AI server penetration to potentially reach 11% by 2027E. We believe NVDA should maintain its strong share position as the market leader following the launch of B100 later this year, driving 2.5-6x performance improvements with ASPs up just 25-30% over H100, as NVDA sees Gen AI as a $100T market with greenfield projects from customers driving $250B of investments per year, as well as $250B of brownfield investments,” Rakesh opined.
Rakesh goes on to give NVDA shares a Buy rating, with a $1,000 price target that implies a one-year upside potential of ~13%.
Overall, it’s clear that Mizuho’s upbeat rating is no outlier – Nvidia stock has picked up 41 recent analyst reviews, including 39 Buys and 2 Holds, for a Strong Buy consensus rating. The stock is selling for $887.89, and its $1,005.59 average target price suggests it will gain 13% in the year ahead.
