Throughout history, investors have been entranced by new trends, constantly seeking the next big thing. Currently, the artificial intelligence (AI) revolution is captivating the investing community with its potential to revolutionize numerous industries. AI, powered by machine learning, promises to enhance efficiency and productivity across the globe, estimated to contribute over $15 trillion to the global economy by the turn of the decade, as projected by experts at PwC.

The significant economic impact of AI has not escaped the notice of Wall Street analysts. Many predict substantial returns from AI stocks in the coming year, including the iconic megacap company Nvidia (NASDAQ: NVDA).

Re-evaluating Nvidia’s Potential against the Competition

One prominent analyst, Ananda Baruah of Loop Capital, foresees Nvidia’s stock soaring to $1,200, translating to a 52% increase from its closing price on Feb. 23, 2024. This surge would result in a staggering $1 trillion increase in market capitalization, possibly propelling Nvidia to the forefront as the world’s largest publicly traded company.

Baruah’s bullish outlook might be due to Nvidia’s pivotal role as the backbone of the AI industry. The company’s A100 and H100 graphics processing units (GPUs) are projected to hold a dominating 90% share of GPUs used in high-compute data centers by 2024. With demand outstripping supply, Nvidia has surpassed Wall Street’s revenue and profit forecasts, benefiting from robust pricing power in the short term.

However, Nvidia faces challenges ahead. Intensifying external competition from companies like Advanced Micro Devices and Intel, as well as internal rivalry, could impede its growth. Additionally, Nvidia’s top clients, Meta Platforms and Microsoft, are developing their AI-driven data-center chips, posing a threat to Nvidia’s market dominance.

The company’s gross margin may also suffer if GPU production ramps up, potentially reversing the pricing power that has been instrumental in propelling Nvidia’s data-center sales.

Discovering the Hidden Gems in the AI Sector

Despite Baruah’s positive forecast for Nvidia, other Wall Street analysts see higher growth potential in three other AI stocks.

Image source: Getty Images.

Unlocking Baidu’s Potential with AI

One such stock is China-based Baidu (NASDAQ: BIDU), as per Fawne Jiang at Benchmark. Jiang estimates that Baidu stock could reach $210 per share, offering an enticing 89% upside potential from its closing price on February 23.

Baidu, renowned for its internet search engine dominance in China, holds a substantial market share in the nation’s search sector. Leveraging its success in AI, particularly through AI Cloud and the pioneering autonomous ride-hailing service, Apollo Go, Baidu has demonstrated remarkable growth compared to its traditional internet search segment. Its generative AI solutions are revolutionizing targeted advertising, attracting businesses with tailored marketing approaches.

Jiang’s price target is grounded in Baidu’s historical growth, robust cash reserves of $27.8 billion, and a modest forward P/E ratio. With non-online marketing revenue potentially driving Baidu’s stock to $210, the target seems within reach.

Driving Towards Success with Mobileye Global

Another promising AI stock in contention is Mobileye Global (NASDAQ: MBLY), a pioneer in advanced driver assistance systems (ADAS) and autonomous driving solutions. Analyst Itay Michaeli from Citigroup envisions Mobileye Global’s stock tripling to $72 per share.

With the automotive industry embracing cutting-edge technology, products like Mobileye’s SuperVision are leading the way. These advanced systems offer features such as hands-off lane changes, acceleration and deceleration, evasive maneuver assistance, and autonomous vehicle navigation. As vehicles evolve into smarter entities, Mobileye’s innovative solutions are poised for widespread adoption.

Boasting profitability and a substantial order backlog, Mobileye is well-equipped for sustained growth. However, the looming specter of an economic downturn could challenge the attainment of the $72 price target in 2024.

Electrifying Potential of Tesla in the AI Realm

The final contender surpassing Nvidia in growth potential, according to analyst Dan Ives from Wedbush Securities, is electric vehicle (EV) pioneer Tesla (NASDAQ: TSLA). Ives projects Tesla’s stock could surge to $315 per share, offering a substantial 64% upside from its current value

Reviving Tesla: Evading A Financial Pothole on the Road to Growth

Tesla’s Turbulent Journey to Sustain its EV Dominion

On February 23, Tesla’s shares experienced a significant decline, sending ripples through the stock market. The electric vehicle (EV) giant’s reliance on AI solutions for features like Autopilot has been a cornerstone of its success in the EV landscape, where it holds pole position in North America. Tesla’s 2023 production marked almost 1.85 million EV units, coupled with continued profitability for the fourth consecutive year under GAAP metrics.

However, the horizon doesn’t seem as rosy as Baidu’s prudent high-water price target. Analyst Dan Ives’ soaring price target for Tesla seems like a distant dream with mounting challenges. The company has grappled with slashing prices for its popular Models 3, S, X, and Y multiple times in response to waning EV demand and heightened competition as its production scales up. Although Tesla’s sales figures are on an upward trajectory, its operating margin has nosedived to 8.2% within a mere year.

Challenges Beyond the Steering Wheel

Tesla’s ambitions to diversify beyond the automotive realm have hit a bump on the road. Growth in its Energy Generation and Storage segment stuttered sequentially, while Services gross margin plummeted below 3% in Q4. With the company primarily dependent on EV sales and leases for profits, the precarious position is exacerbated by Tesla’s lofty valuation of over 60 times the projected 2024 earnings amid an industry typically characterized by single-digit price-to-earnings ratios.

The pressure on Tesla, juxtaposed with its competitors like Baidu, paints a stark picture of the challenges awaiting the EV pioneer as it navigates through the turbulent waters of the market.

Is Baidu a Safer Haven for Investors?

Considering investing in Baidu instead? Before making a move, heed this advice. The Motley Fool Stock Advisor team overlooks Baidu in their list of the top 10 stocks poised for substantial returns. While Baidu didn’t make the cut, the 10 selected stocks carry the promise of significant gains in the near future.

Stock Advisor equips investors with a user-friendly roadmap for success, offering insights on portfolio construction, regular analyst updates, and two new stock recommendations each month. Since 2002, the service has outperformed the S&P 500 by an impressive margin, making it a beacon for savvy investors.

For a glance at these promising stocks amidst the market’s ebbs and flows, including historical returns as of February 26, 2024, delve deeper into the possibilities that lie beyond Tesla’s trodden path.

Closing Reflections

In the tumultuous landscape of the EV market, Tesla finds itself at a crossroads, steering through price wars, demand fluctuations, and competitive pressures. As investors recalibrate their strategies, the likes of Baidu beckon with promises of stability and growth. The tale of these two giants unfolds against the backdrop of an industry in flux, where past successes offer little assurance for the road ahead.

Amidst the cacophony of market dynamics, one thing remains clear – the journey for Tesla and its cohorts is far from smooth sailing, with financial headwinds threatening to steer them off course.

The opinions and perspectives articulated in this article are the author’s own and may not necessarily align with those of Nasdaq, Inc.