Upside Potential Than Nvidia: 2 Best Artificial Intelligence (AI) Stocks to Buy Now, According to Wall Street

Interest in artificial intelligence (AI) has skyrocketed since the launch of ChatGPT in late 2022. Nvidia has been one of the biggest winners in terms of revenue growth and share price gains. But while Wall Street still expects shares to rise next year, analysts are predicting more upside potential. Amazon (AMZN 0.30%) And Vistra (VST 3.02%).

• Nvidia has set an average price target of $150 per share. This implies an upside of 6% from the current share price of $141.
• Amazon has set an average price target of $220 per share. This implies an upside of 17% from the current share price of $188.
• Vistra has a median price target of $143.50 per share. This implies an upside of 16% from the current share price of $124.

I believe Nvidia stock is a must-have for investors hoping to benefit from the AI ​​boom. But owning a basket of AI stocks is the smartest strategy, so Amazon and Vistra are certainly worth considering.

1. Amazon

Amazon’s investment thesis is based on its strong competitive presence in three markets. Specifically, the company operates the largest online marketplace in North America and Western Europe in terms of sales. Amazon is also the third largest digital advertising company. And Amazon Web Services (AWS) is the largest public cloud.

Amazon uses artificial intelligence in its retail business to automate coding and supply chain management, as well as provide product recommendations to customers. Morgan Stanley Analysts believe the resulting cost savings could boost the company’s operating profit by several percentage points. But the company is particularly well positioned to monetize AI thanks to its leadership in cloud infrastructure and platform services (CIPS).

AWS accounted for 32% of CIPS expenses in the second quarter, while Microsoft Azure took second place with 23% market share and AlphabetAccording to Synergy Research Group, Google Cloud Platform ranked third with a 12% market share. AWS is building on its leadership with Amazon Bedrock, a cloud service that allows enterprises to fine-tune pre-trained models and build their own generative AI applications.

Goldman Sachs Analyst Kash Rangan estimates public cloud spending will grow 22% annually to reach $2 trillion by 2030, and he believes up to 15% of that could be spent on generative AI services. AWS is well positioned to benefit from Bedrock simply because it is already the largest public cloud in terms of revenue, customers, and partners.

With that in mind, Wall Street expects Amazon’s earnings to increase 25% over the next 12 months. This consensus estimate makes the current valuation of 45 times earnings look reasonable. Indeed, of the 67 analysts who follow Amazon, 63 currently rate the stock a buy. Investors should feel comfortable buying a small position in this AI stock today.

2. Vistra

The investment thesis for Vista is simple. Enterprises spend a lot of money on AI infrastructure, but AI systems require enormous computing power, which itself requires a huge amount of energy. Many experts see nuclear power as the answer because it has virtually no carbon emissions and is more reliable than renewable energy sources such as wind and solar. Vistra has the second largest nuclear fleet in the United States.

Vistra is a utility company that combines the generation of electricity from gas, coal, nuclear and renewable energy sites with the retail sale of electricity to residential, commercial and industrial customers in 16 states and the District of Columbia. With an installed capacity of 41 gigawatts (GW), Vistra is considered the largest electricity producer in the United States. The company is also the largest retail supplier of residential electricity in the country.

Importantly, Vistra recently entered into long-term power purchase agreements with two hyperscale cloud companies that are at the heart of the AI ​​boom. The first involves building a 200-megawatt solar facility backed by Amazon, while the second involves building a 405-megawatt solar facility backed by Microsoft. Investors are hoping nuclear deals will be next for Vista, similar to the recent agreement between Microsoft and Constellation Energy.

Notably, management expects the AI ​​boom to boost data center power demand by 35 GW between 2023 and 2030, but it’s by no means Vistra’s only growth driver. For example, population growth in West Texas could boost electricity demand by 20 GW by the end of the decade, and the company sees a potential opportunity in relocating industrial activity.

Wall Street expects Vistra’s earnings to increase about 250% over the next 12 months. The figure reflects increased demand for power for data centers and an intensive capital return program that has seen Vistra buy back a quarter of its shares over three years. In this context, the current valuation of 91 times earnings is reasonable. Indeed, of the 15 analysts who follow Vista, 14 rate the stock a buy. And even the lowest price target of $127 per share suggests 2% upside.