Stocks in the artificial intelligence sector have experienced a downturn due to the tariffs introduced by the Trump administration, which have reignited concerns about a potential recession. This trend is particularly noticeable among the so-called “Magnificent Seven”, all of which have seen declines in their share prices for the year, with most dropping by over 10%.
Nonetheless, some analysts are optimistic about specific AI stocks, particularly Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT). Here’s a closer look at their potential:
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Vivek Arya from Bank of America projects a 12-month target price of $200 for Nvidia, suggesting a 69% increase from its current price of $118, translating to a market cap of $4.8 trillion.
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Brent Thill of Jefferies has set Microsoft’s target price at $550, indicating a 42% upside from its current price of $386, with a market value of $4.1 trillion.
Investors should note that Nvidia’s GPUs are pivotal for advanced AI systems. According to Forrester Research, “Nvidia sets the pace for AI infrastructure globally, and modern AI heavily relies on its GPUs.” Additionally, Nvidia manufactures complementary hardware like CPUs and networking components, effectively creating complete AI data centers.
Currently, Nvidia’s stock is down 21% from its peak, influenced by market concerns regarding DeepSeek’s recent advancements with fewer GPUs than U.S. counterparts like OpenAI. However, CEO Jensen Huang argues that the market has misinterpreted this development, claiming that efficiency improvements could enhance AI hardware demand.
Despite facing challenges with U.S. export restrictions, which have reduced their revenue from China, Nvidia’s future looks promising with the launch of Blackwell GPUs and full-stack computing solutions for autonomous technologies. The continuous growth in AI spending, projected at 36% annually through 2030, offers substantial opportunities for Nvidia.
Microsoft, as a leader in enterprise software and public cloud services, is poised for growth with anticipated increases in both markets. Despite recent stock declines and questions about its AI investments, there is optimism that cost reductions in AI cloud services will boost demand, particularly for Microsoft Azure. CEO Satya Nadella highlighted that their AI segment is on track for a revenue run rate exceeding $13 billion, marking a significant annual growth.
In conclusion, while realizing a 42% increase in Microsoft’s stock or a 69% rise in Nvidia’s share price over the next year may be uncertain due to prevailing tariff issues, long-term investors might find value in these stocks. However, potential buyers should consider insights from Motley Fool’s Stock Advisor, which recently identified their top 10 stock recommendations, notably excluding Nvidia.
