The Stock Scaring Google, Meta, & NVIDIA

Artificial intelligence remains the biggest narrative in the financial markets today.

There are simply far too many vectors as to how this still-nascent bit of tech can radically reshape entire industries.

If we wanted to hone in on two of the best-positioned companies regarding this change, we’d be looking at Nvidia (NASDAQ: NVDA) and Google’s parent company, Alphabet (NASDAQ: GOOGL). How they benefit is pretty apparent — NVDA is the pre-eminent hardware provider, and Google has both the infrastructure and the data to monetize the insights provided by AI at scale.

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However, as impressive as the moats these companies have are, they are not insurmountable — in fact, one of Google’s "blind spots" could, hypothetically, prove to be a big issue going forward — one that could bite into Nvidia’s bottom line as well.

Research has shown that users spend as much as 61% of their online time on the open web — think of it as everything outside of the walled ecosystems of Google, Meta, Amazon, and Apple, for example. On the flip side, up to 75% of programmatic ad spending is still geared toward these "walled gardens.”

Here’s the kicker — ad spend aimed at the open web is growing at a rapid pace in terms of efficiency. Findings from the Association of National Advertisers suggest that 2024 saw a 22% increase in ad spend productivity growth.

With data privacy becoming an ever-more important issue, and with these large ecosystems possessing bargaining power often seen as unfair, there’s fertile ground for marketers to get a better bang for their buck on the open web, where both of these problems are moot points.

Criteo (NASDAQ: CRTO) might be the business that is best-positioned to benefit from this increasingly likely shift.

Before we move on to why I believe CRTO stands apart from the competition, let’s backtrack a bit to better explain how the whole ad spend mechanism actually works.

On one end, with have advertisers, who utilize demand-side platforms (DSPs), which allow them to automatically bid for advertising space. On the other end, we have publishers who want to sell their advertising space, and do so through supply-side platforms (SSPs).

Where does Criteo fit into this? It’s primarily a DSP, because it helps advertisers bid on targeted ads on the open web. However, it also partly acts as an SSP, as it provides the infrastructure that helps large retailers such as Best Buy sell ad space on their own websites. Moreover, real shopper data is used for targeting — so there’s no reliance on Google’s infrastructure — and that’s an advantage that will likely appeal to numerous online businesses.

The fact that the company operates on both ends of the ad exchange isn’t the only unique thing about it — it utilizes artificial intelligence in its operations, but the specific machine learning models used are focused on inference. These are usually pre-built, pre-trained models — lean, fact, and highly optimized. 

How does that relate to Nvidia? Well, it’s a threat to AI monetization — these models are so efficient and focused on a small subset of tasks that there’s no need to plug into Nvidia’s GPU-heavy tech stack. While I’m not suggesting that Nvidia won’t be able to successfully monetize AI at scale, it’s clear that there’s a lot of wiggle room where the chipmaker’s products can simply be sidestepped.

Okay, that’s the basic idea — now, let’s turn to CRTO’s particular strengths. Our rating system, which takes into account 115 proprietary factors that correlate with outsized returns, puts Criteo shares in the top 4% of equities on the whole. This corresponds to a Zen Rating of A — and stocks of this distinction have historically provided an average annual return of 32.52%.

To get a better sense as to why our system rates Criteo stock so highly, we have to look at its Component Grade ratings.

The stock ranks quite favorably in a variety of categories — but Value is by far its strongest suit. It’s currently trading at a price-to-earnings (P/E) of just 9.79x — and even when we factor in growth, by looking at the price-to-earnings growth (PEG) ratio, a 0.63x figure implies that it is severely undervalued.

To cut a long story short — CRTO stock ranks in the top 1% in terms of Value. In terms of Growth, it ranks in the top 14% — same with Financials.

So, we already have a bargain relative to its growth potential, and the finances to not only sustain but expand operations. That’s already quite a few points in Criteo’s favor — but there’s another area where it shines.

The Zen Ratings system has an Artificial Intelligence rating. It uses a neural network trained on more than 20 years of fundamental and technical data to determine which stocks have a high chance of outperforming. Before it was added into the mix, a Zen Ratings score of A correlated with an average annual return of roughly 28%. Once the AI rating was added into the mix, the average return jumped to the present 32.52% mark.

And in terms of its Artificial Intelligence Component Grade rating, CRTO ranks in the 97th percentile — equivalent to or better than 97% of the more than 4,600 stocks that we keep track of.

With all of that said, how do Wall Street researchers feel about CRTO? Quite bullish, actually — if we filter to only include the coverage of top analysts (rated in the top 25% or higher), we arrive at an average price target of $39.83 — which equates to a 56.45% upside from the stock’s current price.

So, there you have it — trading at a great valuation, CRTO, which has secured Wall Street’s confidence, is uniquely positioned to take a bite out of both Google and Nvidia’s lunches. Will it replace or overtake these tech giants? Nope, not in a million years — but it does stand a good chance of securing significant profits by either sidestepping or ameliorating some of the issues at play with 2 of the Mag 7 companies.

—> If CRTO has piqued your interest, you might want to take a look at our Zen Ratings + Top Analysts stock screener

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