The Nasdaq Composite (^IXIC +0.65%) entered a new bull market on April 8. The technology-heavy index has since advanced by 53%, but history suggests more upside is likely over the next year. Since 1990, the Nasdaq has returned an average of 281% during bull markets, compounding at 31% annually.
How can investors capitalize? Most Wall Street analysts view Nvidia (NVDA 1.81%) and Zscaler (ZS 0.25%) as undervalued, as detailed below.
- Among 71 analysts, Nvidia has a median target price of $250 per share. That implies 41% upside from the current share price of $177.
- Among 51 analysts, Zscaler has a median target price of $330 per share. That implies 31% upside from its current share price of $251.
Here's what investors should know about these artificial intelligence stocks.
Image source: Getty Images.
1. Nvidia
Semiconductor company Nvidia reported excellent financial results in the third quarter. Revenue soared 62% to $57 billion, driven by solid growth across all four segments: data center, gaming, professional visualization, and automotive/robotics. Meanwhile, non-GAAP net income climbed 60% to $1.30 per diluted share.
The investment thesis for Nvidia centers on its leadership position in data center GPUs (graphics processing units), chips used to accelerate demanding workloads like artificial intelligence (AI). Nvidia also enjoy a leadership position in generative AI networking gear, and its CUDA software platform affords the company a durable competitive moat.
To elaborate, while several companies have adopted custom AI chips to some degree, including recent news that Meta Platforms may use Alphabet's tensor processing units, custom chips lack prebuilt software tools. But Nvidia's CUDA platform is a collection of code libraries and tools that save developer hours, so much so that Nvidia GPUs are often cheaper than custom chips when accounting for adjacent costs.
Consequently, several analysts estimate that Nvidia through the end of the decade will maintain 70% to 90% revenue share in AI accelerators, a market where spending is forecast to increase at 29% annually through 2033. In turn, the consensus estimate says Nvidia's earnings will grow at 37% annually over the next three years. That makes the current valuation of 44 times earnings look relatively cheap.
NASDAQ: NVDA
Key Data Points
2. Zscaler
Zscaler is a cybersecurity company that specializes in zero trust network access and cloud protection. Its platform, known as a security service edge (SSE), modernizes corporate networks by inspecting traffic and enforcing business policies in the cloud rather than central data centers. Decentralizing the process improves network performance while eliminating the cost of on-premises security appliances.
Zscaler has a key advantage in scale. Its platform sees trillions of signals each day that inform its machine learning models and enhance its ability to detect threats. In theory, unparalleled scale means Zscaler provides superior threat protection. Indeed, earlier this year, consultancy Gartner ranked the company as a leader in the SSE market, which is projected to grow at 22% annually through 2033.
Zscaler reported encouraging financial results for the first quarter of fiscal 2026, which ended in October, beating guidance on the top and bottom lines. Revenue increased 26% to $788 million, an acceleration from the previous quarter, and non-GAAP earnings increased 25% to $0.96 per diluted share. The company raised its full-year guidance modestly on the top and bottom lines.
Management sees artificial intelligence as a dual tailwind. The technology is both reinforcing the need for cybersecurity by increasing the "speed, effectiveness, and blast radius" of cyberattacks, and creating a new category of IT assets that need to be protected. Zscaler is capitalizing on that opportunity. Revenue from AI security products increased 80% in the first quarter.
Looking ahead, Wall Street expects adjusted earnings to increase at 17% annually through the fiscal year ending in July 2028. That makes the current valuation of 72 times adjusted earnings look expensive. But Zscaler beat the consensus earnings estimate by an average of 16% in the last six quarters. Assuming that trend continues, the current price is more reasonable.
