According to the analysts at Melius Research, artificial intelligence (AI) continues to be a significant focus in the earnings of technology companies. For those seeking attractive AI opportunities, Nvidia and Cisco are the ones to keep an eye on.
Nvidia: A Promising AI Player
It comes as no surprise that Nvidia (ticker: NVDA) is a top recommendation. The chip maker’s stock has skyrocketed this year, tripling in value, thanks to the utilization of its graphics-processing units to power AI systems.
Recent Concerns
However, Nvidia’s shares have experienced minimal growth over the past three months due to tighter restrictions on the export of AI chips to China imposed by the U.S. These restrictions have caused worry among investors. Reuters reported on Tuesday that Chinese search company Baidu (BIDU) sought an alternative AI chip supplier and placed an order with Huawei earlier this year, instead of Nvidia.
Melius Analyst’s Reassurance
Nevertheless, Melius analyst Ben Reitzes believes there’s no reason for Nvidia investors to be concerned. Reitzes suggests that Nvidia will be able to find other buyers for its chips. Additionally, during the upcoming earnings announcement on November 21, the company is expected to provide details about the potential redistribution of products originally intended for China to other regions, such as the Middle East.
Software Revenue Potential
Furthermore, there is potential for Nvidia to surprise investors with its software revenue. A positive outcome in this area could further instill confidence in Nvidia’s already high valuation.
Reitzes elaborates, “If Nvidia can demonstrate the ability to sell more than a billion dollars in unbundled software and generate more recurring-like revenue from their AI training service, DGX Cloud, we may see the company maintain a higher valuation as earnings mature.”
Analyst Bullish on Nvidia and Cisco
Analyst Reitzes has expressed a positive outlook for both Nvidia and Cisco in the tech industry. Reitzes has a Buy rating on Nvidia with a two-year target price of $730. This is based on a price-to-earnings multiple of 35 times the company’s projected 2026 earnings. His bullish stance on Nvidia makes him one of the most optimistic analysts on Wall Street, as the average target price among 52 analysts is $655, according to FactSet.
Despite this positive sentiment, Nvidia shares were down 0.7% in premarket trading on Tuesday, standing at $454.51. However, Reitzes believes that Cisco’s recent acquisition of Splunk, a cybersecurity and data-analytics company, could change the perception of Cisco as an AI favorite. The planned $28 billion acquisition was announced in September.
In Reitzes’ view, Splunk’s leverage of substantial log data could help customers solve network problems through a Generative AI offering. Although this is considered a long-term catalyst, Reitzes sees reason to be positive ahead of Cisco’s upcoming earnings report. He notes that Arista Networks, a peer of Cisco, exceeded expectations in part due to demand from AI companies.
Reitzes recommends buying Cisco shares and has set a two-year target price of $68. He arrived at this figure by applying a price-to-earnings multiple of 14 times its projected 2026 earnings. Currently, Cisco shares are down 0.4%, trading at $53.07 in premarket trading.
Overall, Reitzes’ bullish outlook for both Nvidia and Cisco suggests that these tech companies may have promising future prospects in the AI and networking industries.
