Many people recognize Jim Cramer as the lively host of CNBC’s Mad Money, but it might surprise some to learn that he previously managed a hedge fund that delivered a remarkable 24% annual return over a period of 14 years.
Recently, Cramer suggested investors consider buying shares of Nvidia (NASDAQ: NVDA) and Meta Platforms (NASDAQ: Meta). Since January 2023, the share prices of these companies have skyrocketed by 1,300% and 460%, respectively. Still, a number of analysts on Wall Street think both stocks might actually be undervalued right now.
Remember Nvidia’s notable performance in 2009? There’s a similar exciting signal emerging now. Back in 2009, a “double down” signal appeared for Nvidia, which was then a lesser-known chipmaker. Now, a much smaller company is generating that same “full conviction” signal.
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The median target price for Nvidia, based on 66 analysts, stands at $300 per share. This suggests a potential 42% increase from its current price of $211.
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As for Meta Platforms, 68 analysts have set a median price target of $815 per share, indicating a 22% upside from its current value of $669.
So, what should investors be aware of?
Nvidia
Nvidia specializes in graphics processing units (GPUs), originally designed for computer graphics but now essential for enhancing complex data workloads, particularly in AI. They dominate over 80% of the AI accelerator market.
However, what really sets Nvidia apart is its comprehensive platform that merges GPUs with the necessary hardware and software for AI. CEO Jensen Huang often claims that their systems tend to boast the lowest total ownership cost. This is largely due to Nvidia running entire data centers, allowing for optimization across the performance and power spectrum.
Of course, while there’s an enormous demand for AI infrastructure, Nvidia is facing stiff competition. Some customers are venturing into custom AI accelerators, which has raised questions about the company’s dominance. Yet, Brian Colello from Morningstar provided a different perspective on the matter.
Nvidia enjoys a significant competitive advantage due to its dominance in GPUs and the associated hardware and software essential for the swiftly expanding AI market. In the long run, while major tech companies may seek alternatives to reduce reliance on Nvidia, these attempts are likely to merely nibble at Nvidia’s edge.
Recently, Cramer echoed a similar sentiment. He highlighted that investor focus on competition from hyperscalers like Amazon and Alphabet may overlook the massive demand for Nvidia’s GPUs, which currently exceeds supply. He mentioned that in terms of growth potential, Nvidia could be one of the most undervalued stocks in the S&P 500.
Furthermore, Wall Street projections indicate Nvidia’s adjusted earnings may grow by 56% annually through January 2028, making its current P/E ratio of 36 look relatively inexpensive.
Meta Platforms
Since Cramer recommended Meta on June 16, its stock price has increased by 12%. The value keeps climbing, especially after Bloomberg revealed Meta’s intention to enter the cloud computing market to rival services from Amazon, Microsoft, and Alphabet.
While most viewers associate Meta with digital advertising, the company has an impressive 3.6 billion daily active users across its various social media platforms. This vast user base provides a considerable data edge for targeted advertising. Adding to its competitiveness, Meta has developed proprietary AI models for ad acquisition and ranking.
Despite this, Meta has poured significant funds into building its AI framework, designing custom chips, and developing its models. Total investment is set at $111 billion for 2024 and 2025, with projections reaching $135 billion by 2026. However, Meta’s strategy to monetize its infrastructure through a new cloud computing business might reassure investors.
Bloomberg reported earlier that the company is considering selling access to different AI models hosted on its infrastructure, along with raw computing resources similar to other so-called neo-cloud ventures like CoreWeave.
Cramer seems to be on board with this approach, stating he believes Meta’s cloud strategy will soon yield profits. Even with the S&P 500 index rising by 11% this year, Meta’s shares have been somewhat stagnant as investors ponder the potential return on their AI expenditures. Nevertheless, plans to sell spare data center capacity could help soothe some of those worries.
Wall Street expects Meta’s profits to see a 15% annual growth rate until 2027. Given this, its P/E ratio of 24x appears quite reasonable, especially as Meta has consistently surpassed earnings forecasts by an average of 6% over the past six quarters. I think Cramer’s optimism is justified.
Should you invest in Nvidia stock now?
Before deciding to buy Nvidia shares, consider a few points:
Analysts at Motley Fool Stock Advisor have recently listed their picks for investment—Nvidia isn’t currently among these selections. These ten stocks are highlighted for their impressive growth potential over the next few years.
For reference, if you invested $1,000 in their recommendations back on December 17, 2004, you’d have about $395,679 worth today! Interestingly, had you invested $1,000 in Nvidia when it was recommended on April 15, 2005, it would have ballooned to approximately $1,294,805!
It’s essential to keep in mind that the Stock Advisor program has produced an overall average return of 929%, noticeably outperforming the S&P 500’s return of 211%, which reflects strong market performance. So, don’t miss out on their latest list of top ten stocks.
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