Autodesk Stock: Analysts' Top AI Pick You Shouldn’t Overlook

Key Points

• Despite technology volatility, Autodesk stock is showing markets why it could still have a double-digit upside in the coming quarters. 
• Financials are running hot, and management's focus on subscriptions leads to stability and predictability.
• For good reason, Wall Street analysts and institutions like the stock enough to boost and buy it.

The world of artificial intelligence has been experiencing a major shift in sentiment lately, especially as the leader of the technology sector recently missed expectations for the future. Shares of NVIDIA Co. NASDAQ: NVDA are now trading lower for the second consecutive day since the company announced its second-quarter 2024 earnings results. NVIDIA's current trading at 84% of its 52-week high spells caution for the rest of the sector.

However, now more than ever, fundamentals matter the most. When investors notice top-and-bottom-line growth in their peers in the artificial intelligence or cloud computing industry, they should dismiss most of the price action attached to all the drama. Another perfect example is the recent sell-off in Super Micro Computer Inc. NASDAQ: SMCI after a short report attacked the company's accounting practices.

Today, Autodesk Inc. NASDAQ: ADSK is making headlines to attract potential investor interest for the coming quarters. The stock offers shareholders all the benefits of artificial intelligence without recent drama and volatility. It trades at 95% of its 52-week high and has gone on a 22.7% rally over the past month alone. Here's why momentum might not be over for Autodesk stock.

All Business Drivers Are Firing on All Cylinders for Autodesk Stock

Every sector and industry has key performance indicators (KPIs), and Autodesk is no different. Autodesk offers 3D modeling services for the construction sector and monthly cloud computing and cloud storage plans for its users to rely on when working on new developments and projects.

While this makes the company extraordinarily dependent and exposed to the real estate cycle, management has figured out a way to hedge all this volatility. Before investors determine that plan, here are some main KPIs pushing Autodesk stock’s value higher for the next few quarters.

Sales reached $1.51 billion this quarter, showing 12% growth over the past 12 months. What’s more interesting is the company’s operating margin rose by 37% over the year due to the same efficiency and stability strategies that management has implemented over the past year.

All of this growth in financials led to Autodesk’s earnings per share (EPS) growth to $2.15 over last year’s $1.91, or 12.6% growth. Wall Street analysts might be conservative in their forecasts now. Still, they expect to see 15.5% EPS growth in the next 12 months, considering the recent business model changes in Autodesk.

Investors should be aware of the company’s free cash flow (operating cash flow minus capital expenditures), which grew to $203 million from $128 million in the same quarter of 2023, a 58.5% jump. Consistently positive free cash flow is the foundation for further shareholder benefits like buybacks and dividends in the future.

That leads investors to where the predictability and stability will come from and management’s new plan to hedge customer cyclicality. Subscription revenue is now $1.41 billion, or 11% higher than last year. These subscribers have showcased a retention rate of 100%, meaning Autodesk can easily project further financial growth and billings.

Speaking of billings, these reached $1,24 billion, representing 13% annual growth. Since future projections for Autodesk stock are now easily obtainable, Wall Street analysts have had an easier time projecting the company’s valuation in the future.

Wall Street's Outlook on Autodesk Stock Remains Bullish

Price action is one thing, favoring Autodesk at the moment as it trades at 95% of its 52-week high. Still, there are other gauges that investors should check in this decision process. Analysts at Morgan Stanley and Stifel Nicolaus have landed on a similar valuation for Autodesk stock as recently as August 2024.

That price target is set at $320 a share today, which directly calls for as much as 20.1% upside from where the stock trades today, which would call for a new 52-week high to be made in the company. Other gauges include actual market participants and what investors might call capital flows.

Bears decided to bail out Autodesk stock recently, as the company’s short interest declined by 23.2% over the past month alone. Other participants for investors to keep track of include institutional buyers, who have given up to $6.3 billion in capital to the company in the past 12 months.

Now reporting 90.2% institutional ownership, Autodesk stock reflects its quality perception today. Of these buyers, Bank of Montreal and Point72 Asset Management (Steve Cohen’s hedge fund) stood out in their allocations. As recently as August 2024, both of these players boosted their stakes by 42.2% and 366.5%, respectively.