Artificial intelligence (AI) has created tremendous opportunities for investors. Nvidia (NVDA +1.73%) has been one of the best-performing AI stocks so far. Demand for its data center chips used to train AI models has sent its shares up over 700% since the end of 2022.
But Nvidia's revenue growth is starting to slow, which could lead to more moderate gains this year. The average analyst price target on the stock is currently $174, implying upside of 42% over the current $122 share price.
That would still be an excellent return for investors, but all the attention on AI is taking the spotlight off stocks in non-tech industries that appear undervalued. On that note, three Fool.com contributors see higher upside potential in Dollar General (DG 2.73%), PDD Holdings (PDD 2.69%), and Roku (ROKU +2.26%). Here's why these stocks can soar in 2025.
A discount retailer ripe for recovery
Jeremy Bowman (Dollar General): Beating Nvidia this year won't be easy, but one stock that's in a good position to do it is Dollar General. The discount retailer had a dismal 2024 as profit fell, consumer spending was weak, and it faced intensifying competition from Walmart.
However, Dollar General is implementing a turnaround plan, and it should start to pay off this year. The company is closing temporary storage facilities to control supply chain costs and improve efficiency, and it's added wholly owned distribution centers.
The company is also reorienting its in-store strategy, eliminating low-volume stock-keeping units, reducing out-of-stockages, ensuring the checkout area is adequately staffed, and eliminating most of its self-checkouts to cut down on theft.
In addition, the consumer spending environment is getting healthier as inflation comes down, and interest rates are expected to continue to fall this year.
NYSE: DG
Key Data Points
Dollar General does face some risks, including tariffs, but it benefits from competitive advantages including a store base of more than 20,000 locations, which means it has a store within 5 miles of around 75% of the U.S. population.
The company is also experimenting with same-day delivery through its app in a bid to match Walmart's e-commerce offerings, partnering with a third-party service for deliveries.
Dollar General also looks like a good candidate to surge this year because the stock is cheap, at a price-to-earnings ratio of 12. Recouping its losses from last year would mean a roughly 80% gain this year, and with a valuation that low, it shouldn't take much to lift the stock.
The company reported 1.3% same-store-sales growth in the third quarter and it continues to open hundreds of new stores a year. The retailer is still growing. It just needs to do a better job of controlling its costs. If it can do that, the stock could soar this year.
A bargain growth stock
John Ballard (PDD Holdings): PDD is experiencing tremendous growth in the global e-commerce market. It operates two online platforms: Pinduoduo and Temu. These platforms are taking discount retail to a new level, and it's translating to explosive growth.
NASDAQ: PDD
Key Data Points
The company has had a lot of success using a direct sales strategy that reduces costs and delivers big savings to consumers. But the Pinduoduo platform has also implemented a gamification model that drives up customer loyalty and rewards group buying. Buyers can invite friends on social networks to get volume discounts on items, and it's winning customers in droves.
Despite a weak consumer spending environment, revenue across these platforms grew 44% year over year in Q3 2024. The e-commerce market has been very competitive, particularly in China, which has caused sluggish growth for some of the leading e-commerce platforms, from Alibaba and JD.com. One reason for that is increasing competition from PDD.
Another attractive feature of PDD's business is that it generates revenue from charging fees for transactions and marketing services. That makes it a very profitable business. In Q3, operating profit came to $3.4 billion on $14 billion of revenue -- a high operating margin of 24%.
As more buyers come for the great deals, it helps attract more merchants and increases the selection of items for sale. This situation creates a positive cycle of growth and helps the company achieve greater scale to reduce costs. All told, PDD is strengthening its competitive position the more it grows.
The uncertainty in the economy and the increasing competition in China have driven online retail stocks to dirt cheap valuations. Investors can buy shares of PDD for just 9 times 2025 earnings estimates. The stock could double in value and still trade at a modest earnings multiple of 18 -- well below the S&P 500 average of 30.
Improved profitability should send this stock higher
Jennifer Saibil (Roku): Roku has been out of favor with the market for a while. It's 83% off its high from back in 2021, and it's down 11% over the past year. But it continues to demonstrate robust growth, and there are reasons to be confident about its future. This could be the year it finally rebounds in a big way.
NASDAQ: ROKU
Key Data Points
Most people know the company for its streaming devices, which connect to screens for optimal viewing. They have a a range of products for different budgets, including connected screens. While this is the more visible business, it's actually its smaller segment, accounting for about 15% of total revenue. Roku's big opportunity is in its platform business, which is mostly advertising on its free channels. It's also its more profitable business, although Roku is still reporting net losses, which is its biggest problem right now. However, the situation is starting to look a lot better.
In 2024's third quarter, company gross margin was 45.2%, its highest in five quarters. It was also the fifth consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and positive free cash flow. Wall Street is still expecting a net loss in 2025, but there should be continued improvement, and that should send the stock higher.
Roku has consistently grown is membership base, viewing hours, and revenue. It had 85.5 million streaming households in the third quarter, a 13% increase year over year and a slight increase sequentially. Viewing hours were up 20% year over year and also ticked up sequentially, and more people watching is more money for Roku. It's ramping up international expansion, which could substantially boost sales as well.
Investor sentiment is starting to change. Roku stock is up 9% so far this year, and it could continue to be a winning stock in 2025.
