Some artificial intelligence (AI) companies have risen to the occasion in 2024, riding the wave of AI innovation and transforming it into impressive financial performance, while others have just been lucky. As the year wraps up, three large-cap AI stocks stand out: Nvidia (NASDAQ:NVDA), Palantir Technologies (NASDAQ:PLTR), and MicroStrategy (NASDAQ:MSTR).

NVDA data by YCharts

U.S. technology giants continue to dominate the global AI race, and early investors have reaped massive gains on the big winners in this hot space. However, the top-performing AI stock on the list has rallied on non-AI-related momentum. Let’s dive into how the best AI stocks leveraged AI to capture attention (and investors’ dollars) this year.

Nvidia stock: The undisputed AI champion

Semiconductor designer Nvidia continues to experience unbelievably strong revenue, earnings, and cash flow growth rates in 2024, and NVDA stock has soared 173% year-to-date to make the Jensen Huang-led tech giant the largest company in North America with a US$3.5 trillion market capitalization.

Nvidia has booked the most dollar revenue and earnings and generated the most cash flow from pure AI-related products and business lines so far in 2024. Its dominance in AI hardware and software development tools has created what appears like a monopoly in the global AI space.

This year, Nvidia smashed records across the board:

• Revenue growth: 135% year-over-year for the nine months to October 27, 2024, to US$91.2 billion.
• Net income: 190%, with operating margins expanding from 70.9% to 75.8%.
• Free cash flow growth: 187.3% to US$45.2 billion.

With its groundbreaking AI accelerators and highly sought “free” AI software development platform, the company has tripled its revenue, earnings, and cash flow run rates in 2024.

In the near term, Nvidia expects to hit US$37.5 billion in revenue this quarter, a 70% year-over-year increase by January 2025. Revenue growth momentum remains strong.

Investors who bought in early have seen spectacular returns, but even at current valuations, Nvidia stock remains the gold standard in AI. Nvidia stock’s forward price-to-earnings (P/E) multiple of 32.8, and a forward price-earnings-to-growth (PEG) ratio of 0.8 make the AI stock seem undervalued relative to its strong future earnings growth potential.

Palantir Technologies stock: The quiet highflier

Up 284% year-to-date, Palantir Technologies may not have Nvidia’s market clout, but its stock performance this year has been nothing short of stellar. Known for its advanced data analytics and “military-grade” AI platforms, Palantir has seen revenue growth rates accelerate every quarter, from 12.7% in mid-2023 to 30% by September 2024.

Key highlights:

• Operating margins doubled year-over-year to 15.6% this year.
• Debt-free balance sheet: A rarity in today’s market.
• Inclusion in the S&P 500 this year boosted demand as passive funds rushed to buy.

While Palantir’s fundamentals shine, the stock’s forward price-to-earnings ratio of 138 might give value-conscious investors pause. Still, its momentum and robust financial health make it a compelling long-term play.

MicroStrategy: An AI stock riding Bitcoin’s wave

It’s up 515% so far this year, but MicroStrategy stock’s AI story is more of a subplot than the main narrative. While the company has enhanced its software offerings with AI capabilities, its true catalyst in 2024 has been Bitcoin. As the largest corporate holder of Bitcoin, MicroStrategy has profited handsomely from the cryptocurrency’s meteoric rise to over US$100,000 per coin.

The numbers:

• MicroStrategy held 279,420 BTC by November 11, 2024. The stash was acquired at an average cost of US$42,692 per Bitcoin.
• Its core software business, however, hasn’t seen much growth, with revenue declining sequentially from US$499 million in 2022 to $467.2 million over the past 12 months.

Investors looking to bet on AI innovation might find MicroStrategy lacking. But if Bitcoin is your game, this stock could be another indirect play.

What does 2025 hold?

The AI landscape evolves rapidly, and 2025 will undoubtedly bring new contenders to the forefront. For now, Nvidia leads the pack, Palantir impresses with its steady execution, and MicroStrategy stands as a reminder that not all AI stocks are created equal.

Whether you’re chasing growth, value, or speculative thrills, AI offers a little something for every type of investor. As exciting as these AI stock success stories are, due diligence remains key. The future may be AI-powered, but investing success still depends on your ability to separate hype from substance.

The post Who Will Be the AI Winners of 2024? Here Are the Top Contenders appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has positions in Palantir Technologies. The Motley Fool recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.

OpenText (TSX:OTEX), a $10.5 billion Canadian technology stock that carried some artificial intelligence (AI) fueled investor hopes going into 2024, has faced a turbulent year, with organic revenue shrinking by 1.8% in the past quarter, persistent challenges from formidable competitors like Microsoft, a revived IBM, and Dropbox, and increasingly subdued investor sentiment. However, with a robust 3.7% dividend yield, upsized share repurchases, and promising AI-focused initiatives planned for the next year, could the Waterloo-based tech giant make a compelling comeback in 2025?

Can OpenText reverse its revenue decline?

Despite cutting costs and enhancing its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, OpenText stock’s struggle with organic growth has been a persistent concern. Management’s Fiscal Year 2025 revenue guidance implies just 1% annual growth. This tepid outlook reflects limited success in capturing new market share despite substantial investments in generative AI over the past 12 to 18 months.

The company’s “Titanium X” project aims to integrate AI agents across its cloud product offerings in 2025, a move that could help retain existing customers and perhaps attract new ones.

AI integration, while necessary, has so far failed to grow OpenText’s sales meaningfully. For 2025, success will hinge on accelerating sign-ons for its AI-powered products, supported by expanded contract durations and new partnerships with cloud providers. Falling interest rates and broader AI adoption trends may provide a tailwind for the company to achieve moderate growth.

OpenText stock’s cash flow supports shareholder returns

OpenText remains a cash flow juggernaut. It plans to return a record $570 million to shareholders in 2024 through dividends and share repurchases. The company’s robust free cash flow generation ensures these payouts are sustainable. However, such capital-allocation strategies often signify a mature business with limited growth opportunities, a point not lost on wary investors.

The current dividend yield of 3.7% is attractive in today’s high-interest-rate environment, offering steady income for long-term investors. Share buybacks, while reducing the float and boosting per-share metrics, have done little to offset the 35% decline in OpenText’s share price over the past three years.

For meaningful investor sentiment revival, OpenText must prove that AI-led initiatives can deliver sustainable revenue and earnings growth.

A cheaply valued tech stock?

OpenText’s enterprise value-to-free cash flow (EV/FCF) multiple of 19.2 is less than half its industry’s average multiple of 41.7. Valuation metrics, such as price-to-earnings (P/E) and price-to-free cash flow (P/FCF) ratios, suggest OTEX stock trades at a discount relative to peers. However, this discount reflects market skepticism about its growth trajectory.

The company faces intense competition in enterprise software, particularly from Microsoft, which leverages AI with its Copilot suite, and Dropbox, which offers similar enterprise content solutions. These competitors enjoy equally broader customer bases and strong ecosystems, putting OpenText in a tight spot despite its disciplined acquisition strategy.

What could turn the tide for OpenText stock in 2025?

To regain investor confidence in OpenText stock and reverse its negative organic growth, the company will focus on AI-driven product success, strategic partnerships in cloud rollouts, and cost efficiencies in 2025.

AI-driven products include Titanium X, which should demonstrate measurable traction, driving customer acquisition and revenue. The company mentioned closing 20 new AI-related customer wins during its recent earnings event in November. Sustained success in AI-powered solutions will be critical to reviving demand for its products and reviving investor interest in the stock.

Strategic partnerships with cloud computing platform providers have built alliances that boost product adoption rates among enterprise customers, while continued focus on operational efficiency to maintain EBITDA margins while navigating a highly competitive landscape will ensure steady profitability.

A sustained recovery in organic growth, coupled with falling interest rates, could propel OpenText stock’s valuation higher, rewarding patient investors.

Investor takeaway: Buy, sell, or hold?

Given its current challenges, OpenText stock could be in a drawn-out transitional phase. For growth-focused investors, the stock might not be a top pick until there is evidence of revenue acceleration. That said, the attractive dividend yield and ongoing share buybacks offer value for income-oriented investors.

I view OpenText as a Hold for 2025. While near-term growth is unlikely to be transformative, the company’s cash flow stability and AI ambitions provide a long-term case for cautious optimism. Investors should monitor its progress closely as the Titanium X rollout unfolds.

The post Is OpenText Stock a Buy, Sell, or Hold for 2025? appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Dropbox, International Business Machines, and Microsoft. The Motley Fool has a disclosure policy.

Investors were on the edge of their seats heading into Nvidia‘s (NASDAQ: NVDA) highly anticipated financial report after the market closed on Wednesday — and rightfully so. The company has become the bellwether for the tech industry and a barometer for the progress of the artificial intelligence (AI) revolution.

The chipmaker delivered better-than-expected results, giving investors assurances that this paradigm shift would continue. However, hidden among the otherwise blockbuster results was one red flag that bears watching.

Below, I’ll take a look at the results, what the future holds, and one thing investors should keep an eye on.

By the numbers

The bar was set high heading into Nvidia’s fiscal 2025 third quarter (ended Oct. 27), and the chipmaker delivered. The company generated record revenue of $35.1 billion, up 94% year over year and 17% sequentially. This fueled adjusted earnings per share (EPS) of $0.81, which surged 103%.

For context, analysts’ consensus estimates were calling for revenue of $33.13 billion and EPS of $0.75, so Nvidia cleared both hurdles with room to spare.

Fueling the robust results was a record performance from the data center business, which continues to be the main driver. The segment — which includes processors used for cloud computing, data centers, and AI — delivered revenue that soared 112% year over year to $30.8 billion, driven by strong demand for AI.

One of the concerns that surfaced last quarter was a sequential dip in the company’s gross margin, a trend that continued in Q3. Gross margin of 74.6% was down 500 basis points from 75.1% in the second quarter. CFO Colette Kress blamed a product “mix shift from H100 systems to more complex and higher cost systems.” While the trend continued this quarter, it’s still well above the average of the past decade.

Data by YCharts.

Yet even as revenue soared 94%, operating expenses climbed just 50%, sending more to the bottom line and fueling the 103% jump in EPS.

Nvidia’s cash stockpile has more than doubled over the past year, with cash and marketable securities of $38.5 billion, an increase of 110%. Free cash flow of $16.8 billion soared 138%.

The company provided investors with an update on the upcoming release of its highly anticipated Blackwell AI architecture, which is scheduled to begin shipping in the calendar fourth quarter:

We completed a successful mask change for Blackwell, our next Data Center architecture, that improved production yields. Blackwell production shipments are scheduled to begin in the fourth quarter of fiscal 2025 and will continue to ramp into fiscal 2026 … Both Hopper and Blackwell systems have certain supply constraints, and the demand for Blackwell is expected to exceed supply for several quarters in fiscal 2026.

Nvidia’s fiscal 2026 begins in late January, and the commentary suggests that even as demand remains strong, supply constraints will hamper its growth well into next year.

The future looks bright, but…

Management expects the company’s growth spurt to continue. Nvidia is guiding for record fourth-quarter revenue of $37.5 billion, which would represent year-over-year growth of 70%. While that’s ahead of Wall Street’s expectations of roughly $37 billion, investors were initially hesitant to celebrate — but that soon gave way to reverie.

Nvidia already has plenty of growth priced in, but the stock is still attractively priced, selling for roughly 35 times next year’s expected earnings. While that’s a slight premium, it’s a reasonable price to pay for a company that’s expected to grow earnings by 121% this year and 47% in its fiscal 2026.

There is one area investors should keep an eye on. In Nvidia’s CFO Commentary, Kress noted that “Cloud service providers represented approximately 50% of our Data Center revenue.” Doing the math reveals that 44% of Nvidia’s total revenue — or $15.4 billion — comes courtesy of the big cloud infrastructure providers, primarily Amazon Web Services, Microsoft‘s Azure Cloud, and Alphabet‘s Google Cloud.

The buildout of cloud data centers is ongoing, and the major cloud providers have all signaled they plan to continue spending heavily to expand their AI infrastructure. That trend primarily benefits Nvidia, as the company has a dominant 98% share of the market for data center graphics processing units (GPUs). However, that cuts both ways. If demand slumps — for any reason — the major cloud providers could rein in spending, putting billions of dollars of Nvidia’s revenue at risk.

Don’t get me wrong. I’m a big believer in the potential of AI and, by extension, the opportunity ahead for Nvidia. The stock represents roughly 12% of my personal portfolio (as of this writing), so I’m rooting for the company to succeed. That said, I’d be remiss if I didn’t keep a weather eye on the horizon for problems that could send the stock plunging.

The post Nvidia Just Delivered a Beat-and-Raise Quarter. There’s 1 Red Flag Investors Shouldn’t Ignore. appeared first on The Motley Fool Canada.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Danny Vena has positions in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

Shares of Nvidia (NASDAQ: NVDA) surged higher (again) on Tuesday, jumping as much as 4.9%. The stock gave up some of those gains in the afternoon but still closed up 4% for the day, settling at $147.01.

The catalyst that sent the chipmaker and artificial intelligence (AI) specialist higher was a pair of price target increases by Wall Street analysts ahead of the company’s quarterly report, which is expected to be released today after the market closes.

The bulls are running

Truist Securities analyst William Stein maintained a buy rating on Nvidia stock while increasing his price target to $167. For investors keeping score at home, that represents potential gains of 19% compared to Monday’s closing price.

The analyst believes Nvidia is a buy ahead of its earnings, as he thinks there’s still potential upside compared to Wall Street’s current expectations. He cites increasing demand in the data center market, which is the repository for the vast majority of AI systems and models.

Not to be outdone, Stifel analyst Ruben Roy maintained a buy rating on Nvidia stock while increasing his price target to $180. This represents potential upside of 28% compared to Monday’s closing price.

The analyst believes Nvidia will “beat and raise,” beating Wall Street’s consensus estimates for the quarter while also increasing its guidance for the full year. He points out that expectations have been rising ahead of Nvidia’s fiscal 2025 third-quarter results, which will be released after the market close on Wednesday. He cites supply chain checks as supporting robust demand for Nvidia’s soon-to-be-released Blackwell architecture.

A lot to prove

Nvidia dialed back expectations when the company issued its last quarterly report, but the results are expected to be robust nonetheless. For its fiscal 2025 third quarter (ended Sept. 29), the company guided for revenue of $32.5 billion, which would represent growth of 79%, with a corresponding uptick in profitability.

Investors will also be watching Nvidia’s gross margin, which was slightly lower in Q2 after hitting a new record in the first quarter. Another area of interest will be progress regarding the company’s upcoming Blackwell AI-centric processor release, which is expected to kick off later this year.

Nvidia stock is currently selling for 33 times next year’s earnings, but I’d argue that’s a small price to pay for a company that’s widely considered the gold standard for AI processing.

The post Why Nvidia Stock Rallied (Again) on Tuesday appeared first on The Motley Fool Canada.

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Fool contributor Danny Vena has positions in Nvidia. The Motley Fool recommends Nvidia. The Motley Fool has a disclosure policy.

Nvidia (NASDAQ: NVDA) has proven to be an excellent investment over the short and long terms. The stock has soared 2,700% in five years and so far this year, is heading for an increase of almost 200%.

The reason behind this is simple: Nvidia has built an artificial intelligence (AI) empire, serving one of today’s highest-growth areas. The current $200 billion AI market is forecast to reach $1 trillion by the end of the decade. As this growth takes place, Nvidia could be one of the biggest winners.

The tech company’s dominance in AI chips and related products and services has helped it report triple-digit revenue growth in recent times, and at rock-solid levels of gross margin. If you haven’t gotten in on Nvidia yet, though, you may be wondering whether now — ahead of the upcoming earnings report — would make a good time to invest in this hot stock. Below are two reasons to buy Nvidia before the Nov. 20 report — and one reason to wait.

Reason to buy: Potential update on Blackwell

Nvidia is heading for a big moment, and the company probably will give us an update during the fiscal 2025 third-quarter earnings report next week. The tech powerhouse is launching its new Blackwell architecture and best-performing chip ever during the fourth quarter. It aims to ramp up production and generate billions of dollars in revenue during this time period, Nvidia said during its last earnings report back in August.

The tech giant also said at the time that demand for Blackwell surpassed supply, and this is expected to continue into next year. This tells us that customers are flocking to Nvidia for the new platform — and are even willing to wait for it.

The company has offered updates about the Blackwell launch during past earnings reports this year, so as we approach the key moment, it’s likely we’ll learn more about this major new release. Considering the forecast for billions in revenue as of the very first quarter of commercialization, there’s reason to be optimistic about Blackwell as a new growth driver for Nvidia.

If this top AI player offers us confirmation of these points — and potentially additional positive details — the stock could soar after Nov. 20.

Reason to buy: Reasonable valuation in the world of growth stocks

Nvidia isn’t the cheapest stock on the block, trading at more than 50x forward earnings estimates today. But it’s important to put this into perspective. For a growth stock involved in AI, it’s not the most expensive stock, either. Software company Palantir Technologies and cybersecurity giant CrowdStrike both trade at much higher levels by the same measure, for example.

NVDA Price-to-Earnings Ratio (Forward) data by YCharts.

Nvidia actually looks reasonably priced at today’s level when considering both its track record and potential for earnings growth in the years to come. As mentioned, revenue has soared and a gross margin level of more than 70% shows solid profitability on sales. Moving forward, growth in the AI market, Nvidia’s position as a leader, and the company’s focus on innovation to stay ahead should keep earnings marching higher.

Potential good news from Nvidia on Nov. 20 could push the stock higher, lifting its valuation, too. All of this makes Nvidia look like a great long-term growth stock to get into at today’s price.

Reason to wait: Long-term investing means you don’t have to time the market

Nvidia makes a great buy today because it’s reasonably priced, considering its prospects, and may get a boost from any positive news on Blackwell during the upcoming earnings report. However, long-term investors don’t have to rush into a particular stock to benefit from a potential short-term move.

This is because share performance over a period of a few days or weeks won’t have much impact on returns if a stock is held for five years or longer. This is great news because you don’t have to worry about timing the market and feeling disappointed if you miss out on one particular period of gains. If the company is solid and has bright long-term prospects, positive share-price performance will happen over time.

All of this means that there are some good reasons to buy Nvidia right now, ahead of the earnings report. However, if you’d rather wait — or need to wait to free up cash to invest — don’t worry. An investment after the report or even further down the road still may score a big win for your portfolio over the long haul.

The post 2 Reasons to Buy Nvidia Before Nov. 20 and 1 Reason to Wait appeared first on The Motley Fool Canada.

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Fool contributor Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends CrowdStrike, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.

The whole artificial intelligence (AI) boom created an uproar among tech stocks. AI became the buzzword, and several software companies rushed to somehow incorporate AI into their model over FOMO (fear of missing out). While it is true that AI holds immense potential, businesses have to look at AI and ask one question, How can we monetize it? This whole frenzy of putting money in AI without thinking it through is creating a bubble similar to the dot.com bubble.

Drawing a comparison between the internet and the AI revolution

In the late 1990s, the internet was a revolution. Companies sprung up everywhere, calling themselves internet businesses without knowing how to monetize their potential. The sheer volume of such companies and the investors’ FOMO caused the internet bubble. If you are worried that we are living in an AI bubble, it could be true, as many pure-play AI companies have yet to show material monetary benefits to justify their lofty valuations.  

The fact that AI is at the stage the internet was back in 1999 gives you a reason to invest in this new revolution now. The internet boom made personal computers more useful and Intel the PC chip leader. AI has made Nvidia the data centre computing leader. But you know, the biggest beneficiary of the internet was not Intel but social media, search engines, and e-commerce companies that arose from the internet.

The AI revolution has only touched the hardware. The application opportunity is yet to be tapped. It could create a whole new industry. Till we find that industry, you could consider investing in Canadian technology stocks that are using AI to say relevant.

Now is the time to invest in Canadian AI stocks

If you search for pure-play AI stocks, there are not many companies with strong fundamentals. You can find companies like Coveo Solutions built out of generative AI. However, it is too early to invest in such stocks. Instead, you could consider investing in more mature tech companies that have shown prowess in monetizing new technology efficiently.

Shopify

Shopify (TSX:SHOP) is an e-commerce company that has successfully built its model and thrived in a market dominated by Amazon and Alibaba. Shopify maintained its niche of providing small and medium-sized retailers a digital marketplace. The platform subscription and merchant services cost is cheaper than renting a shop downtown. There was nothing new about e-commerce, but Shopify’s implementation made it unique.

The company has always been enthusiastic about new technologies and is now testing AI in various applications. Its Shopify Magic tools will help customers use AI to write product descriptions, beautify the product image background, help solve customer queries via chatbots, and carry out more targeted affiliate marketing. It could test artificial intelligence in other aspects to enhance the overall shopping experience.

At present, artificial intelligence is just in the test phase. If Shopify can harness its true potential, the company could reshape the e-commerce experience and grab the attention of Gen Z and Gen X. Shopify has the potential to make money from it.

Hive Digital Technologies

Hive Digital Technologies (TSXV:HIVE) does not come out as an AI company. However, its high-performance data centre provides the infrastructure needed for AI computing. Once artificial intelligence gathers momentum, GPU (graphic processing unit)-powered data centres will become a necessity. And when that happens, the stock could make a vertical jump. Hive is offering its computing speed on a rental basis for developers who want to perform high-performance computing tasks. This segment is growing fast but is still not big enough to make a difference in the stock price. So buy the stock before the cloud business becomes big.

If not AI

While the above two stocks can grow and benefit from AI, their growth is not dependent on it. Shopify is moving steadily in the e-commerce space and Hive is in the crypto-mining space. With the business doing fine as usual , it can keep your investment growing. If the AI card materializes, your investments can get a boost.

The post Why Now is the Time to Invest in Canadian AI Stocks appeared first on The Motley Fool Canada.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Amazon, Intel, and Nvidia. The Motley Fool has a disclosure policy. Fool contributor Puja Tayal has no position in any of the stocks mentioned.</em>

In recent years, Nvidia (NASDAQ:NVDA) has emerged as the powerhouse in the artificial intelligence (AI) chip market, dominating with an impressive 80% market share. The growth stock’s stellar performance, marked by 194% year-over-year revenue growth to $96 billion over the past 12 months has left investors and industry watchers in awe. Nvidia stock has skyrocketed by 1,069% in 24 months, but volatility has spiked lately as confidence levels in its growth’s sustainability widely diverge among market participants.

Bullish AI stock investors believe the artificial intelligence hardware market is yet to reach its full potential, while concerned investors worry about market saturation as Nvidia floods its channels with highly priced wares and new competitors emerge even from among the company’s customers.

Let’s discuss how Nvidia could sustain or lose its recent revenue and earnings growth momentum, and see if there’s still room for more upside on the multi-bagger AI stock.

The bear case: Potential roadblocks ahead

Potential market saturation, high AI project failure rates, the loss of a key Asian market, growing competition from unlikely sources, and production delays are among the negative factors that may stall Nvidia’s revenue growth rate.

Twenty-four months into the AI chip craze, it’s likely that many who wanted Nvidia chips for AI model training have already acquired some. With chip production rates ramping up and new hardware variants emerging, the market could soon peak and become saturated.

High AI project failure rates are of concern. Recent estimates that 80% of AI projects are failing (despite early hype) point to potential declines in demand for AI chips. Hardware prices may start falling, taking Nvidia’s revenue and earnings margins down.

Most noteworthy, Nvidia could lose its Chinese market. Geopolitical tensions led to U.S.-imposed barriers on AI chip exports to China. Chinese AI chip designers like Huawei, whose Ascend 910C processor for AI training has gained traction, could take over the market. The Chinese government is actively campaigning for local firms to avoid American chips, and Nvidia could lose a significant portion of this big market.

But how important is the Chinese market to Nvidia stock? Well, China is Nvidia’s third-largest single national market, accounting for 12.6% (US$12.1 billion) of total sales during the past four quarters. Revenue losses in this market will, to some extent, dampen Nvidia’s explosive growth spree.

Further, Nvidia faces growing competition from new AI chip manufacturers and even its major customers (Meta Platforms, Microsoft, Alphabet, and Amazon.com), which are designing custom chips. While the tech giants may not completely abandon Nvidia, this trend eats into potential demand.

Lastly, recent production delays for Nvidia’s new Blackwell GPU architecture have raised some concerns among investors.

The bull case: Why Nvidia stock’s revenue and earnings might keep soaring

High obsolescence rates, strong brand loyalty, expanding productive capacity, and sustained private-equity capital injections into AI startups may help propel robust demand for Nvidia’s chips for years to come.

Rapid obsolescence plays in Nvidia stock’s favour. The constant need for the latest technology plays into Nvidia’s hands. The company continues to innovate with new Blackwell chips coming in 2025 and the next-generation Rubin chip platform potentially launching in 2026. Demand could remain robust.

Further, Nvidia enjoys strong brand loyalty. The company has cultivated a devoted following in the AI community, extending to major cloud hosting companies that stockpile Nvidia chips to meet client demands.

Most noteworthy, demand for Nvidia chips remains robust and Hon Hai Precision Industry Co., the company’s key production partner, is ramping up capacity in Mexico to meet “crazy” demand for servers equipped with Nvidia’s super chips.

Moreover, Nvidia’s strength isn’t just in hardware. The company’s software platform for artificial intelligence projects, particularly its CUDA stack, creates significant barriers to entry for competitors, potentially cementing the company’s market dominance in the long term.

The Foolish bottom line

While Nvidia stock faces notable challenges, particularly in the Chinese market and from increasing competition, the company’s strong brand, innovative pipeline, and dominant market position suggest that its growth story may have more chapters yet to unfold.

That said, investors should monitor geopolitical factors, competitive developments, and Nvidia’s ability to execute on its product roadmap. In the high-stakes world of AI chips, Nvidia’s future growth may not be guaranteed, but it seems far from hitting a ceiling just yet.

The post Is Nvidia’s Growth Sustainable? appeared first on The Motley Fool Canada.

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• Missed Out on Nvidia? My Best AI Stock to Buy and Hold

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

Canadian investors should look to profit from the generative artificial intelligence boom now that prices on certain stocks have come down a bit. And not all AI investments are in the technology industry.

Actually, most companies outside the tech scene have a lot to gain from AI.

Here, we’ll look at two indirect ways Canadians can profit from AI, thanks to the increased demand for energy that’s come with AI. All those data centers hog a lot of power from the grid.

‘AI stocks’ are more than tech stocks

As more data centers are becoming equipped with AI in mind, global demand for energy could easily continue climbing from here. Transmission companies, power producers, and more utility-like firms should all become trickle-down AI beneficiaries.

And their valuations are much more reasonable than pure-play AI tech stocks, especially if you’re in the market for a cheap investment that also yields fat dividend yields.

These two utility stocks may be great bets for safety and perhaps a hint of secular tailwinds. Although I wouldn’t call them AI plays, per se, I do think that new AI investors looking for safety and stability should consider these stocks this October.

Fortis stock

First up, we have tried and tested utility play Fortis (TSX:FTS), which boasts one of the stablest cash flow streams out there. Indeed, the low beta (0.23 at the time of writing) entails a lower degree of market risk. And though the stock has been hot of late, rising more than 11% in the past three months alone, I still view the 4.13%-yielder as a great pick-up if you seek dividends and a way to weather any potential volatility that could be in the cards in the fourth quarter.

Apart from doing its part to fuel rising energy demand, the company is also primed to benefit from what could be much lower interest rates. As you know, lower rates will allow Fortis greater financial flexibility to pursue growth projects that can keep the dividend growth record going strong.

So, whether you’re an AI investor who’s looking to rotate into more of a defensive play or a near-retiree looking to lock in a high yield before the Bank of Canada cuts rates again, FTS stock seems like a bargain at just 18.65 times trailing price-to-earnings (P/E).

Hydro One stock

For investors seeking rock-solid stability and an absurdly wide moat, there’s Hydro One (TSX:H), which some investors may consider a monopolist of sorts. The utility firm commands a pretty fat premium, with shares trading at 23.5 times trailing P/E at writing.

And though the 2.87% dividend yield isn’t as high as historical norms, I do think the recent pullback of 8% is worth getting behind if you haven’t initiated a position already. With a strong second quarter in the books, AI investors who’ve neglected the defensive part of their portfolios may wish to punch at a ticket at just shy of $44 per share.

The post AI Investors: 2 ‘Sleep Easy’ Dividend Stocks to Buy in October appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

The world is on the cusp of a technological revolution powered by artificial intelligence (AI). From self-driving cars to personalized medicine, AI is transforming industries and reshaping our lives. For growth-oriented Canadian investors, this presents a golden wealth-building opportunity. AI stocks are not just a fleeting trend; they are a gateway to participating in a future brimming with potential.

The AI revolution: Made in Canada

It’s fitting that on October 8th, the “Godfather of AI,” Geoffrey E. Hinton, a figure closely associated with Canada’s University of Toronto, received a Nobel Prize in Physics for his groundbreaking work on artificial neural networks. This recognition underscores AI’s deep roots in Canada, and it’d be sad if Canadian investors lag behind international peers in harnessing the new technological growth wave for profit.

AI is no longer a futuristic fantasy; it’s here, and it’s disrupting industries and workflows. Algorithms predict your shopping habits, chatbots answer your questions, and machines diagnose diseases with incredible accuracy. This could just be the beginning. Bloomberg Market Intelligence estimates the global AI market will explode from US$40 billion (C$54.7 billion) in 2022 to a staggering US$1.8 trillion (C$2.5 trillion) by 2032, bringing lasting changes to many industries and generating immense wealth for AI stock investors in the process.

Why Canadian investors should embrace AI stocks

• High growth potential: Investing in AI stocks is akin to investing in the internet in the 1990s. Early adopters stand to gain significantly as the AI market expands. Nvidia stock’s 995% gain since October 2022 is an early example of the potential returns AI stocks may generate as they revolutionize entire industries. Growth potential is still evident as Nvidia’s production partner, Hon Hai Precision Industry Co., boosts its production capacity in Mexico to meet the “crazy” demand anticipated for Nvidia’s AI chips in 2025.
• Diversification: AI stocks can add valuable diversification to your portfolio. By investing in a sector with different growth drivers than traditional Canadian energy and resources industries, you can potentially reduce your overall portfolio risk and enhance returns.
• Long-term investment: Artificial intelligence is not a fad; it’s a fundamental shift in how we work and interact with digital content. Investing in AI stocks is a long-term strategy, offering the potential for sustained growth as AI continues to evolve and integrate into every facet of our lives.

A Canadian AI stock to consider right now: Kinaxis

Kinaxis Inc. (TSX:KXS), an Ottawa-based company, provides cloud-based supply chain management solutions powered by AI. Kinaxis helps businesses make faster, more informed decisions in today’s increasingly complex global economy. Sustained revenue growth, a view to profitability growth, and recent activist investor activity have pushed Kinaxis stock to an 11.8% gain during the past month as the company transitions from an analytics platform builder to an accelerated growth phase.

Given a forward price-earnings (PE) multiple of 38.5 and a price-earnings-to-growth (PEG) ratio of 1, Kinaxis stock appears fairly valued given its impressive projected earnings growth of 49.4% annually over the next five years. This strong growth trajectory should propel Kinaxis stock higher.

Grab an AI stock ETF for diversity

Alternatively, Canadian investors who wish to gain instant diversification across multiple global AI stocks could consider buying AI-focused exchange-traded funds (ETFs) like the CI Global Artificial Intelligence ETF (TSX:CIAI). The CIAI ETF offers cheap exposure to a portfolio of 41 global artificial intelligence stocks that may enjoy significant economic benefits from their role in advancing artificial intelligence.

Get ready for a bumpy ride

While AI stocks offer immense growth potential, they can be extremely volatile, and the rapid pace of technological change creates uncertainty. Consider limiting your entire portfolio exposure to a risk level that you are willing and able to deal with.

However, by carefully researching AI companies; joining investment research groups, forums, and platforms; diversifying your investments; and staying informed about the fast-evolving AI landscape, you can mitigate the risks of investing in AI stocks.

Investor takeaway

The AI revolution is here, and long-term-oriented Canadian investors shouldn’t miss out on this opportunity to participate in one of the most transformative technological shifts in history. Start researching, explore your options, and consider adding AI stocks to your portfolio today.

The post Why AI Stocks Should Be in Every Canadian Investor’s Portfolio appeared first on The Motley Fool Canada.

More reading

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Kinaxis and Nvidia. The Motley Fool has a disclosure policy.

If you had invested $5,000 in Nvidia (NASDAQ: NVDA) 10 years ago, your investment would be worth more than $1.24 million today. The chipmaker minted a lot of millionaires, as its sales of gaming and data center graphics processing units (GPUs) skyrocketed.

But with a market cap of $2.9 trillion, Nvidia is now the third-largest publicly traded company in the world after Apple and Microsoft. Could it turn a new $5,000 investment into $1 million again over the next 10 years?

Why did Nvidia’s stock soar?

Nvidia is the world’s largest producer of discrete GPUs for high-end PCs and servers. Its GPUs can be used to process high-end graphics in video games, power photo and video editing software, mine cryptocurrencies, and process complex artificial intelligence (AI) tasks.

In the past, Nvidia generated most of its revenue from the PC market. But over the past few years, its data center business eclipsed its PC gaming business as companies scrambled to upgrade their servers to handle new AI applications. All of the world’s leading AI companies — including Microsoft, OpenAI, and Alphabet‘s Google — now use Nvidia’s chips.

From fiscal 2014 to fiscal 2024 (which ended this January), Nvidia’s revenue grew at a compound annual growth rate (CAGR) of 31% as its earnings per share (EPS) rose at a CAGR of 50%. Some of that growth was initially driven by the expansion of its gaming GPU business (which was aided by the booming crypto mining market), but the data center business eventually became its core growth engine. That’s why Nvidia’s growth accelerated significantly in fiscal 2024 as the AI market exploded.

Data source: Nvidia. Chart by author.

From fiscal 2022 to fiscal 2024, the percentage of Nvidia’s revenue that came from data center chips doubled from 39% to 78%. That ratio rose to 87% in the first half of fiscal 2025 — so it’s becoming an all-in play on AI-oriented data center chips.

What are the bull and bear cases for Nvidia?

The bulls believe Nvidia’s growth spurt will continue as the market’s demand for new AI chips outstrips supply. They believe the company’s gross margins — which rose from 62% in fiscal 2020 to 72.7% in fiscal 2024 — will continue to grow as it exercises nearly unmatched pricing power in the booming market. They also say the company’s stock looks reasonably valued at 32 times next year’s earnings.

The bears expect Nvidia’s growth to cool as the AI hype dies down, cheaper competitors like AMD gain ground, and tighter export curbs throttle its sales to China. Many of Nvidia’s top customers have also been developing their own AI accelerator chips to reduce their long-term dependence on the chipmaker.

They’ll also note that Nvidia’s insiders sold 10x as many shares as they bought over the past 12 months — so its upside potential might be limited.

Could Nvidia generate millionaire-making gains in 10 years?

From fiscal 2024 to fiscal 2027, analysts expect Nvidia’s revenue and EPS to grow at a CAGR of 50% and 56%, respectively. Most of that growth should be driven by the red-hot generative AI market, which Fortune Business Insights estimates will grow at a CAGR of 40% from 2024 to 2032.

If Nvidia matches Wall Street’s expectations, grows its EPS at a slower CAGR of 30% from fiscal 2027 to fiscal 2035, and still trades at 30 times earnings, its stock price could rally 840% to $1,110 and lift its market cap to $27 trillion by 2034.

But even in that bullish best-case scenario, Nvidia would only turn a $5,000 investment into $47,000. To make $1 million again, you would need to invest about $106,000 today. Therefore, Nvidia might still help you become a millionaire if you can afford to invest that much cash in a single stock — but it probably won’t replicate its gains from the past 10 years.

In reality, Nvidia’s growth could cool over the next decade as the AI market matures and new competitors carve up the market. Its growth could possibly be hampered by a global recession or other unpredictable macro or regulatory headwinds. Investors should keep all those risks in mind instead of assuming Nvidia’s hot stock will continue its historic rally.

The post Could Nvidia Stock Help You Become a Millionaire? appeared first on The Motley Fool Canada.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Leo Sun has positions in Apple. The Motley Fool recommends Advanced Micro Devices, Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.