AI Stocks: A Buying Opportunity with Nvidia and Microsoft?
Artificial intelligence stocks, including those in the “Magnificent Seven,” have faced challenges recently, with tariffs and recession fears contributing to declines. However, some analysts are optimistic about the prospects for Nvidia (NVDA) and Microsoft (MSFT).
Analyst Targets
- Nvidia: Vivek Arya at Bank of America has set a 12-month target price of $200 per share, implying a 69% upside from its current share price of around $118. This suggests a market value of $4.8 trillion.
- Microsoft: Brent Thill at Jefferies has set a 12-month target price of $550 per share, representing a 42% upside from its current level of approximately $386. This suggests a market value of $4.1 trillion.
Nvidia: Poised for Growth Despite Headwinds
Nvidia’s graphics processing units (GPUs) are fundamental to advanced AI systems. As Forrester Research noted, “Nvidia sets the pace for AI infrastructure worldwide.” The company also provides CPUs and networking, essentially building complete AI data centers.
Nvidia’s stock is trading roughly 21% below its recent high due to investor concerns:
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Competition: DeepSeek reportedly trained a reasoning model using fewer GPUs than U.S. companies. However, Nvidia CEO Jensen Huang believes that cost efficiencies will drive demand for AI hardware.
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Export Restrictions: U.S. export controls limit Nvidia’s sales to China and Russia. This has reduced the percentage of Nvidia’s revenue derived from China. While this poses a risk, Nvidia also has positive factors:
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Blackwell GPUs: Nvidia recently launched its Blackwell GPUs, which CEO Jensen Huang expects will be very successful.
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Full-Stack Computing: Nvidia has developed comprehensive computing products for autonomous cars and robots, including hardware, software tools, and on-device systems.
Grand View Research projects spending on AI hardware, software, and services to grow at 36% annually through 2030. Jensen Huang has stated that AI presents a massive opportunity, with Wall Street expecting Nvidia’s earnings to grow at 39% annually through fiscal 2027. Despite current uncertainties, long-term investors may find Nvidia’s valuation attractive.
Microsoft: Leveraging AI in Enterprise Software and Cloud
Microsoft is a leader in the enterprise software and cloud computing markets. As the largest enterprise software company and number two public cloud provider, Microsoft is well-positioned in these growing sectors.
- Enterprise software sales are forecast to increase at 12% annually through 2030.
- Cloud computing sales are predicted to increase at 21% annually over the same period. Microsoft is integrating AI into its products to gain market share.
Microsoft’s stock has fallen from its record high amid concerns about spending on AI projects. However, cost efficiencies achieved by companies like DeepSeek could benefit Microsoft by boosting demand for AI cloud services. A recent CIO survey revealed that Microsoft Azure is likely to gain market share in the coming years.
During the second quarter of fiscal 2025, ending in December, Microsoft’s AI business generated an annual revenue run rate of $13 billion, a 175% year-over-year increase. While the valuation is a little high, if Microsoft continues to exceed earnings estimates, it might become a good deal. Patient investors may consider buying a position in Microsoft.
