My Favorite AI Growth Stock Under $25
By Jim Pearce
A month ago, I advised my readers to "Get Ready for The Next Wave of AI Stocks." The easy money in AI stocks has already been made. During the past year, AI software developer NVIDIA (NSDQ: NVDA) has tripled in value.
That's good news for my Personal Finance subscribers that bought NVIDIA in October 2022 when I recommended it. At that time, it could be bought for less than $12 a share (split-adjusted). But now that it is trading for more than ten times that price, I have it rated as a hold.
To a lesser degree, the same holds true for Microsoft (NSDQ: MSFT), Apple (AAPL), and the other so-called "Magnificent 7" mega-cap tech companies that dominate the stock market. All of them have appreciated substantially this year.
However, it is not too late to get in on the AI boom. As I said last month, "Although the Magnificent 7 are the initial beneficiaries of the AI trend, it won't be long until everyone else gets in the action, too."
It all boils down to valuations. At a recent share price near $130, NVIDIA is trading at roughly 50 times forward earnings. That is more than double the same multiple for the S&P 500 Index.
Microsoft and Apple are slightly less expensive, valued at 33 and 28 times forward earnings, respectively. Sooner or later, those high multiples will become unsustainable as earnings growth slows down.
By the time that happens it will be too late to get out of the way. That's why I have NVIDIA rated as a hold instead of a buy. At some point, its upside potential will be outweighed by its downside risk.
AI for the Masses
But don't despair, the AI party is just getting started. There are plenty of stocks trading at much lower multiples to earnings that will get a piece of the action.
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