It has become clear that AI mania is the investment theme du jour. The fortunes of semiconductor stocks surged in recent months, fueled by the AI boom and the increasing demand for advanced computing technologies.
Enthusiasm about all things AI has also been boosting non-chip stocks, and some companies are far from household names. Small-cap Opera Ltd. (NASDAQ: OPRA), owned by a Chinese conglomerate headquartered in Norway, is a prime example of a stock racing to the moon on the promise of its AI applications.
Opera develops a web browser with a built-in ad-blocker, free virtual private network, integrated messengers and a crypto wallet, among other features. It is "a complete web experience you can't get from system defaults such as Chrome, Safari and Edge."
Its products include web browsers for Android and iOS systems for use on both mobile and desktop computers; Opera Gaming, which consists of a gaming portal and a video game development engine; personalized Opera News, a content aggregation and recommendation platform; Opera Ads, a targeted online marketing platform and the company's Web3 and e-commerce offerings.
Built-In AI Capabilities
According to the company, "The application of leading AI-powered technologies and advanced data analytics and the recommendation engine built into our browsers and news apps and other products and services give our users a better, faster and more personalized online experience and enable advertisers to target relevant users in a more precise way."
The company may fall outside the Peter Lynch "buy what you know" philosophy for OPRA stock. Opera aims its products at customers in emerging markets rather than developed nations, where Alphabet Inc. (NASDAQ: GOOGL) and Apple Inc. (NASDAQ: AAPL), and to a lesser degree, Microsoft Corp. (NASDAQ: MSFT), have gained traction with pre-installed browsers.
According to web analytics firm Statcounter, Opera was one of the most widely used mobile browsers in emerging markets in 2022.
While investors and the media, quite understandably, have gone bananas over the returns of Nvidia Corp. (NASDAQ: NVDA) and its AI potential, Opera has been an even stronger price performer on a three-month, year-to-date and one-year basis.
Opera, too, has been on a tear due to its AI initiatives.
Launched New AI-Ready Browser
On May 24, the company launched its AI: Aria browser, which integrates generative AI services.
In March, Opera announced its collaboration with ChatGPT to power chatbots and other chat features built into its browsers. It also allows users to generate AI prompts by typing or highlighting words on a Web site.
According to Opera, the newest AI-based service will become increasingly integrated into future browser versions "with the ultimate aim of being natively blended into the browser, helping users perform cross-browser tasks."
Look at the Opera chart to understand this stock's breathtaking rise. The word "parabolic" was used to describe some chart movements back in the dot-com era, and it comes to mind when looking at the Opera chart. In other words, would-be investors need to consider this stock's pros and cons.
On the pro side, there's an ongoing commitment to technological development, and the focus on emerging markets, which tend to be younger and faster-growing than developed markets, can also be a plus.
Double-Digit Revenue Growth
Opera's revenue has been growing at double-digit rates in the past eight quarters, and analysts expect the company's earnings almost to double this year to 49 cents per share. So it's a real business, with real revenue and earnings growth, not some pie-in-the-sky speculative play.
On the other hand, with price gains of 74.12% in the past three months and 162.96% year-to-date, seasoned investors may find themselves humming the old Blood, Sweat and Tears song, "Spinning Wheel" and its famous lyrics, "What goes up must come down."
Anybody who remembers the dot-com frenzy would be wise to view Opera's price action cautiously. The stock is currently trading 43.4% above its 50-day moving average, which is too frothy to consider as a proper entry point.
Analysts Say "Buy," But Use Caution
Opera analyst ratings show a consensus view of "buy," but here's another reason to use caution: While the optimism about the stock appears well-founded, analysts also expect a pullback. The current price target is $11.80, representing a downside of 29.59%.
Opera is a stock worthy of keeping on a watchlist, but as far as buying, it may be worth waiting for a pullback or even a new base that can offer a chance to get shares at a better valuation before the next rally begins.