Title: Nasdaq-100’s 40% Surge in 2023 Points to Potential Growth: Consider These 2 AI Stocks
The Nasdaq-100 index has experienced a significant surge of 40% so far in 2023, indicating a strong recovery following a 33% drop in the previous year. This index, which comprises 100 of the largest publicly listed technology companies on the Nasdaq exchange, often reflects the performance of the tech sector as a whole. However, historical data suggests that the upward trend may continue for the rest of this year. Looking back at its performance since 1986, the Nasdaq-100 has only experienced consecutive year declines once, during the dot-com tech bust from 2000 to 2002. On the other hand, after the index’s three other annual declines in 1990, 2008, and 2018, it quickly rebounded with positive gains the following year.
This history bodes well for 2023, and there is potential for further upside given the average return during rebound years, which stands at an impressive 52%. Furthermore, as artificial intelligence (AI) continues to dominate the technology sector this year, stocks in this space are likely to follow the broader market trend. Here, we will discuss two AI stocks worth considering if the Nasdaq-100 continues its ascent.
Opera (OPRA 6.61%) stock has been one of the standout performers this year, surging by a remarkable 288%. Based in Norway, Opera has developed a web browser that incorporates built-in AI tools, revolutionizing the way users interact with the internet. Not only has the company shown solid growth, but it has also achieved profitability.
The Opera browser boasts a range of features, including a crypto wallet, VPN, messaging service, and ad blocker. These features are typically only available on mainstream browsers, such as Alphabet’s Google Chrome, through third-party plugins. This makes Opera one of the most feature-rich products on the market. Furthermore, with its AI tools, Opera takes user experience to a whole new level for its impressive 319 million monthly active users.
Opera has introduced its own generative AI chatbot, Aria, which can create social media posts and engage in discussions with users to address even the most complex queries. In addition, Opera has partnered with OpenAI, enabling Aria to collaborate with ChatGPT, the world’s most advanced and widely used chatbot. These powerful tools boost user productivity, reducing their reliance on third-party search engines and thus prolonging their engagement with the Opera ecosystem. This extended user interaction is crucial for Opera’s revenue generation through advertising. The longer users spend within the Opera ecosystem, the more money the company makes.
In the first quarter of 2023 (ended March 31), Opera’s revenue increased by an impressive 21% year over year, amounting to $87 million. Notably, the company’s profitability soared, with adjusted EBITDA nearly tripling and free cash flow more than doubling. Opera’s cautious spending strategy, particularly on marketing, amidst a challenging economic environment, has contributed to its financial success. The company focuses on acquiring users who monetize at a higher rate rather than solely pursuing user growth. Consequently, Opera’s average revenue per user has reached near all-time highs, with a remarkable growth rate of 174% for users in developed markets over the past four years.
Despite Opera’s stock surging by 288% this year, the company’s valuation is still relatively low at $2.1 billion. Considering its expected revenue of $390 million for this year, Opera’s forward price to sales (P/S) ratio is exceptionally cheap, currently standing at 5.3. In comparison, other AI companies, such as Nvidia, have significantly higher forward P/S ratios, with Nvidia’s at 24.5. With this in mind, Opera’s stock has the potential to continue its upward trajectory for the remainder of 2023, particularly if the Nasdaq-100 continues to climb.
While Opera’s 2023 gain is impressive, C3.ai (AI 0.43%) stock is not far behind, experiencing a surge of 255%. C3.ai may have an even broader opportunity ahead, as the company spearheads the field of enterprise AI. It has developed over 40 ready-made AI applications, which are currently utilized by 287 corporate customers across more than a dozen different industries, including financial services, manufacturing, and energy.
For many companies, building an AI strategy from scratch is a challenging and unrealistic endeavor. Therefore, outsourcing the technical aspects to a provider like C3.ai makes perfect sense. For instance, a bank can benefit from the C3.ai Smart Lending application, which streamlines loan approvals by utilizing AI to analyze large volumes of data rapidly. This results in a 30% reduction in the time required for loan approvals, while the AI-generated loan approvals have maintained an impressive accuracy rate of 98% to date.
In the oil and gas industry, companies are leveraging C3.ai’s technology for predictive maintenance and to mitigate carbon emissions. One such example is Shell, a major fossil fuel company that has adopted over 100 C3.ai applications to monitor thousands of equipment pieces, preventing potential failures that could result in environmental disasters. Shell also utilizes AI to improve asset performance, achieving a reduction of 355 tons of carbon emissions per day at a single liquefied natural gas facility. To put this into perspective, this reduction is equivalent to taking 28,000 cars off U.S. roads for an entire year.
Investors have driven C3.ai’s stock to new heights on the back of the AI frenzy, despite the company’s slower revenue growth of just 5% in fiscal 2023 (ended May 31). C3.ai is currently undergoing a significant transition away from subscription-based pricing, which often involves time-consuming negotiation processes. Instead, the company is adopting consumption-based pricing, allowing customers to join C3.ai quickly and easily by only paying for the services they use.
While it may take some time for customers to scale up their usage under this new pricing strategy, C3.ai believes it can achieve a revenue growth rate of 20% in the current fiscal year, 2024. Based on C3.ai’s projected revenue of $320 million for fiscal 2024, the stock currently trades at a forward P/S ratio of 14.2.
While this ratio is slightly higher compared to Opera, C3.ai foresees an addressable market worth a staggering $791 billion by 2026. Considering this immense potential, C3.ai is merely scratching the surface of what it can achieve. Moreover, the stock remains 75% below its all-time high following a significant sell-off during 2021 and 2022. This indicates that C3.ai’s recovery is still in its early stages, offering the potential for even greater long-term gains.
If the Nasdaq-100 continues its strength, it is likely to provide the necessary sentiment boost for both Opera and C3.ai stocks to continue their upward trajectory throughout 2023.
