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The Nasdaq-100 Is Up 47% in 2023, but This Artificial Intelligence (AI) Stock Is Doing Even Better

Motley Fool - Thu Nov 30, 2023

The technology sector, broadly speaking, is having a great year. The Nasdaq-100 tech index has jumped 47% so far, and it's now a stone's throw away from its all-time high following a brutal sell-off in 2022.

But some individual stocks are far outperforming the Nasdaq-100, particularly those operating in the artificial intelligence (AI) industry. Shares of AI semiconductor giant Nvidia have soared 237% year to date, and AI software company C3.ai has seen a 162% gain in its stock.

While those two names are familiar to investors watching the AI space, there's another stock in the sector flying under the radar. Norway-based Opera Ltd(NASDAQ: OPRA) stock has almost doubled in 2023 on the back of its internet browser with built-in generative AI technology. However, based on the company's present valuation, there could be plenty more upside to come.

A person's hands typing on a keyboard, with a digital rendering of a computer screen popping up.

Image source: Getty Images.

Competing with giants

Opera has developed two web browsers; Opera One, which is a feature-packed platform for everyday use, and Opera GX, which is designed for gaming enthusiasts. Opera One effectively competes with industry giants like Alphabet's Google Chrome and Microsoft Edge.

When a consumer purchases a mobile device or computer, it often comes with Chrome, Edge, or even Apple's Safari set as the default browser, so it isn't easy for companies like Opera to make headway. But it's finding success by offering users a very attractive built-in feature set, without the need to pay for plugins.

For example, Opera One comes with a VPN, a messaging platform, an ad blocker, and even a native cryptocurrency wallet. But the company has developed a generative AI-powered virtual assistant called Aria, which combines Opera's own data with OpenAI's popular ChatGPT chatbot.

Unlike other leading chatbots, Aria is connected to the web so it can pull the most up-to-date information on demand. It saves the user from visiting traditional search engines like Google and spending time sifting through webpages for the answers to their queries. Plus Aria comes with all of ChatGPT's most popular capabilities, including the ability to generate content, whether it's for an article or an email.

Opera GX, on the other hand, is a niche product. While it comes with many of the features on the Opera One platform, it also includes some handy tools for gamers. They can access the Twitch streaming platform and Discord chat application from the sidebar, and Opera GX is also designed to consume 80% less RAM (memory), so more of the user's processing power is available for gaming.

11 consecutive quarters of 20% revenue growth

Opera recently reported its financial results for the third quarter of 2023 (ended Sept. 30). The company had 311 million monthly active users on its One browser, but that number has been trending down throughout 2023. While that sounds like bad news, Opera has focused on attracting users in western markets like Europe and the U.S. because they monetize at a higher rate, while foregoing its marketing initiatives in less lucrative areas of the world.

Opera One had 30 million active users in western markets four years ago, which has grown to 49 million today. Over the very same period, its average revenue per user has more than tripled to $1.31, so the strategy has largely been successful.

It's clearly showing up in Opera's financial results. In Q3, the company generated $106.2 million in revenue, which was a 20% year-over-year increase. It marked the 11th consecutive quarter with revenue growth of at least 20%, which can be attributed to the above-mentioned strategy shift.

Opera is also growing its profitability at a rapid clip. Its Q3 net income came in at $16.8 million, which was a whopping 78% increase from the year-ago period. I'll explain why that is extremely important in a moment.

Why Opera stock is a buy right now

Opera stock has gained 91% in 2023 so far, but it was up far more prior to the market sell-off that began in August. As I touched on at the top, its current valuation might warrant significantly more upside.

Wall Street analysts expect the company to deliver $0.86 in earnings per share for the 2023 full year, which wraps up in December. Based on Opera's current stock price of $11.48, that means it trades at a price to earnings (P/E) ratio of just 13.3. For context, that is 54% cheaper than the 29 P/E ratio of the Nasdaq-100 index.

It's also a whopping 88% discount to Nvidia's 116 P/E ratio. Nvidia has significantly more potential than Opera simply because the semiconductor industry is more valuable than the internet browser industry, so it's not a perfect comparison. But it does highlight the premium investors are paying for some AI stocks, which makes Opera's steep discount to the broader market a little hard to justify.

Finally, Opera is returning some of its profits to shareholders, which should help to attract new investors over time. In the third quarter alone, it paid $10.8 million in dividends and spent a further $17.2 million on stock buybacks.

As a result, while Opera has crushed the performance of the Nasdaq-100 index in 2023 so far, there is certainly a case for more upside in the new year (and possibly beyond).

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.

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