Nvidia (NVDA) stock has gone from $146.10 on December 30, 2022, to $443.09 on July 21, 2023, driving its market cap to over $1 trillion. This massive appreciation (up more than 203% year-to-date, roughly 11 times the growth in the S&P 500 index (SPY) ($SPX) in its share price, has been powered by the rapid development and adoption of Generative AI (Artificial Intelligence). NVDA develops the integral operation systems for AI, led by its full AI stack which supports every framework and model.
NVDA, with its strong positioning in the AI space, is undoubtedly a long-term winner. Analysts maintain a bullish outlook on NVDA stock, with 28 out of 34 analysts recommending a Strong Buy.
While NVDA stock is an obvious long-term bet to capitalize on this transformative technology, the Generative AI tech offers ample growth opportunities thanks to its applicability across all industries, implying there will be multiple winners in the AI space besides NVDA.
So if you’ve missed the impressive rally in NVDA, don't worry. Consider the shares of ASML Holding (ASML) and Synopsys (SNPS) to capture the AI opportunity. Let’s understand why ASML and SNPS stocks should be part of your portfolio right now.
ASML Holding
ASML Holding manufactures lithography systems that are critical to producing leading-edge chips for application in AI, automotive, and big data. With AI adoption at an inflection point, the long-term demand outlook remains strong, supporting the upside in ASML stock.
Despite near-term macro uncertainty, ASML is upbeat about the semiconductor end-markets like data centers, automotive, and consumer electronics. The company sees significant investment in wafer capacity and increased spending on lithography. This will likely support ASML’s financials and stock price.
With AI applications driving solid demand for leading-edge chips and creating broad-based growth opportunities, ASML continues to invest in next-generation technologies and ramp up capacity to meet medium to long-term demand.
The company continues to benefit from strong demand in the Logic market. The Logic end market is gaining from solid demand for tools that support digital transformation, like AI, 5G, and intelligent cloud solutions.
The AI-related dynamics and multi-billion backlogs support my long-term bullish view of ASML. However, it’s important to highlight here that the chip industry is facing headwinds from high inventory levels, which is leading to a lower litho tool utilization rate. Hence, the significant impact of AI-led demand will be reflected in ASML’s business and stock price once the utilization rate recovers to high levels, which will emerge as the big driver for additional shipments. Thus, now could be the perfect time to buy ASML stock and benefit from the AI-led rally in the coming years.
ASML stock has gained about 36% over the past year. Meanwhile, the company enhances its shareholders’ returns through share buybacks and regular dividend payments. ASML stock is trading at a trailing twelve-month price-to-earnings multiple of 34.32, which appears warranted given the strong future earnings growth opportunity led by AI.
Out of the 12 analysts covering ASML stock, 9 have a “strong buy” recommendation, and 3 maintain a “Hold” rating. The average price target for ASML stock is $778.20, which is more than 12% higher than its current trading price of $693.36.
Synopsys
Synopsys provides EDA (Electronic Design Automation) software used to design and test integrated circuits or chips. The company also offers semiconductor IP (Intellectual Property) products used as components of larger chip designs. As its products and services are an integral part of the semiconductor value chain, the company is poised to benefit from the rapid adoption and demand for AI and cloud computing.
With AI providing significant growth opportunities, the company unveiled Synopsys.ai, the industry's first full-stack of AI-driven EDA suite, which positions it well to capitalize on the strong demand.
Thanks to its market leadership in design automation, SNPS will benefit from the incorporation of AI in design products. Moreover, the company is the leading supplier of memory, interface, analog, and physical IP products, which offers significant growth opportunities.
SNPS is expected to gain from robust end-market demand and its highly diversified blue-chip customer base. Besides organic growth opportunities, SNPS is also likely to benefit from its focus on strategic acquisitions.
The company has consistently delivered solid sales and earnings and expects its top line to continue to grow at a double-digit rate in the coming years. Further, with continued margin expansion, management expects the adjusted EPS to grow at a mid-teens rate.
Overall, its solid recurring revenue model, $7.3 billion in non-cancellable backlog, and AI-led growth opportunities make SNPS a solid long-term pick.
Out of the 12 analysts covering SNPS stock, 10 have a “strong buy” recommendation, 1 analyst recommends a “Moderate Buy,” and 1 maintains a “Hold” recommendation. The mean price target for SNPS stock is $462.45, just about 2% higher than where the stock is currently trading. However, just a week ago, Bank of America raised it's price target to $510, from $500, which is more than 13% higher than SNPS' current price.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
