Stock market

Forget Nvidia! 1 AI stock to buy that could rise 41%, according to Wall Street.

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If I’m after a stock to buy in the artificial intelligence (AI) realm, then Nvidia Looks like a choice to go. The firm currently controls about 90% of the advanced AI chip market.

However, Nvidia is now a $2.2trn company, the third largest in the world by market cap. I think, just because of the law of large numbers, it will be difficult to increase its share price.

Therefore, investors like me may be better off looking at smaller companies chasing higher potential returns.

Here’s an interesting AI stock I’ve been buying recently.

A strange thing

The stock I am referring to is Oddity Tech (NASDAQ: ODD). It is an AI-powered firm that sells makeup and skincare online under the fast-growing brands Il Makiage and SpoiledChild.

Shares are down 30% since going public in July 2023.

However, that hasn’t stopped Wall Street from glowing in the stock.

Currently, 75% of analysts covering it rate it as a ‘Strong Buy’. Their average price target is $51, which is 41% above the current share price of $36.

Of course, it may never reach that goal. But it shows that analysts are bullish on this unique cosmetics firm.

A profitable tech innovator!

Oddity’s business is built on big data and machine learning (a subset of AI). Shoppers use its PowerMatch system to identify the right color and skin care formulas through their smartphone cameras.

Il Makiage is known for its signature Get up like this Foundation, while SpoiledChild’s proprietary AI algorithm recommends skin and hair products based on each individual’s personal profile and data.

This model has helped the tech-savvy firm gather more than 50 million users and 2bn data points in just five years.

On May 8, the company reported first-quarter revenue of $212m, a 28% year-over-year increase. This quarterly figure was about the same as it produced in all of 2021.

What I like here is that unlike many high-growth tech businesses, Oddity is already profitable. It achieved a 23% adjusted EBITDA margin in the quarter and generated $79m of free cash flow, a record.

Long-term, it is targeting over 20% annual revenue growth and 20% adjusted EBITDA margin.

I’m buying

Now, there are risks here. With a $2bn market cap, Oddity is still a small player in the highly competitive $600bn+ global beauty industry.

It also contains personal user data, which bad actors can compromise and damage trust.

Also, you can have all the AI ​​tech you want, but it means nothing if the products aren’t great. This is where Oddity Labs comes in. This R&D arm deploys AI to molecular discovery to develop high-quality formulas that meet specific beauty needs.

Management said its trailing 12-month net income recovery rate is 100%. In other words, consumers who spent £100 in the first year spent an extra £100 in the next 12 months.

This significantly high repeat rate indicates strong customer loyalty.

Meanwhile, Oddity’s third brand, focusing on medical-grade skin treatments (acne, eczema, etc.), is being developed. This should fuel further development.

I think Oddity is onto something very powerful here. And with the stock trading at just 20 times forecast earnings, I’ll keep loading.

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