Shares of stock market darling Nvidia (NASDAQ: NVDA) have gained nearly 219% to date yr and have reached near-record highs. The semiconductor giant’s prowess in advanced GPUs and artificial intelligence (AI) software has made it the undisputed leader inside the AI market, which has translated to dramatic improvement in its financial performance.
AI is undoubtedly crucial investment theme in 2024. Many investors is also feeling that they’ve missed the Nvidia rally, especially for the explanation that company is now trading at a forward price-to-earnings ratio of 33 times — far higher than the median semiconductor industry valuation of 19.4 times. These investors can consider buying stakes in other high-quality AI stocks with relatively reasonable valuations, corresponding to Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC).
Here’s why these two stocks are attractive picks in 2024.
Microsoft
Technology titan Microsoft has come out with stellar results for the second quarter of fiscal 2024, with each revenue and earnings surpassing consensus estimates. Not surprisingly, AI has been a major driving force for the company.
Microsoft’s Azure cloud computing platform is the essential thing growth engine, with revenue soaring 30% yr over yr (including a six percentage point lift from AI services) inside the second quarter ending Dec. 31, 2023. Quite the alternative, revenue from key competitors corresponding to Amazon‘s AWS and Alphabet‘s Google Cloud grew yr over yr by 13% and 26%, respectively, in probably probably the most recent quarters. Azure has also managed to secure larger and longer-term deals, including billion-dollar-plus commitments. This may increasingly make certain that the business can remain relatively unscathed even in difficult times.
Azure can be quickly becoming an ideal cloud computing platform for AI workloads, due to its top-notch performance in training and inferencing of enormous language models. Microsoft offers customers a various alternative of AI software models and AI hardware (from multiple chip players) to choose from, all integrated deeply with Azure infrastructure, data, and tools. The company has already built a base of 53,000 Azure AI customers, of which nearly one-third have joined the Azure platform to date 12 months.
One other major growth catalyst for Microsoft is the AI-powered assistant CoPilot embedded in multiple Microsoft products corresponding to Microsoft 365 productivity suite, GitHub, and Microsoft security platform. The company expects the rapid adoption and monetization of CoPilot to translate into a serious improvement in average revenue per user within the approaching years.
Besides the multiple AI tailwinds, Microsoft’s core PC and gaming businesses are also set to improve in 2024. The company’s productivity and business processes division has also returned to double-digit growth to date few quarters.
Microsoft currently trades at a price-to-sales (P/S) ratio of 13.3 times, which is kind of high-priced as compared with the software industry’s median valuation of two.2 times. Nonetheless, considering the company’s strength inside the AI market and improving IT spending trends, this leading consumer and enterprise software company can prove to be a sensible buy in 2024 — even at this time elevated price levels.
Intel
Semiconductor giant Intel has seen its shares tank by nearly 13.4% after posting mixed fourth-quarter 2023 results on Jan. 25. While the company’s revenue and earnings surpassed consensus estimates, its earnings guidance for the first quarter of fiscal 2024 fell significantly wanting analysts’ expectations. Intel has attributed the weak outlook to temporary headwinds inside the Mobileye autonomous driving business, PSG (Programmable Solutions Group), and Intel Foundry Services businesses. Despite these setbacks, there are few positives for this stock.
The PC market appears to be recovering in 2024. IDC expects the complete PC market to grow 3.4% yr over yr in 2024 — driven by the PC refresh cycle to interchange the aging installed base of business PCs and upgrade to latest PCs with integrated AI capabilities. With its market-leading position inside the client PC market, Intel is well-positioned to capitalize on this trend.
Intel can be making rapid strides inside the AI PC market with its Core Ultra client processors — also often called Meteor Lake. These processors have been designed to run low-power computations for AI workloads on client PCs. The company has partnered with greater than 100 independent software vendors and plans to release over 300 AI-accelerated software features optimized for its AI PCs through 2024.
Furthermore, the company’s partnerships with multiple PC manufacturers will even play a pivotal role in driving the adoption of its AI PC systems. Intel expects to ship 40 million AI PC systemsin 2024, to be utilized in over 230 designs from ultrathin PCs to hand-held gaming devices. Even with no significant impact from AI PC systems, Intel’s client computing business saw a healthy 33% year-over-year jump in revenue to $8.8 billion inside the fourth quarter.
Intel also sees its foundry business as a major growth catalyst and expects to vary into the second-largest foundry by 2030. Although the business currently focuses on traditional chip packaging, Intel expects its wafer manufacturing and advanced chip packaging to earn meaningful revenue within the approaching years. This is likely to be driven by the increasing rapid global adoption of AI technologies, which needs a secure and sustainable supply chain of AI-optimized chips. Intel’s foundry business has already secured commitments from multiple clients and has a disclosed total deal value pipeline of over $10 billion. Throughout the fourth quarter, foundry services posted a solid 63% year-over-year jump in revenue to $291 million.
Intel is currently trading at a P/S ratio of three.5 times, far lower than that of peers corresponding to Nvidia and Advanced Micro Devices. Hence, considering the strong tailwinds and reasonable valuation, Intel is also a sensible AI long-term buy — even when the stock encounters some choppiness inside the short run.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Manali Bhade has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft, and Nvidia. The Motley Idiot recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Idiot has a disclosure policy.
Missed Out on Nvidia? 2 Artificial Intelligence (AI) Stocks to Buy Before They Soar in 2024 was originally published by The Motley Idiot