The substitute intelligence (AI) market expanded rapidly over the past few years as more firms recognized the price of crunching large amounts of information to make smarter decisions. Advertisers tapped AI algorithms to craft higher targeted ads, autonomous vehicles used AI to discover and avoid obstacles, and big organizations used AI tools to automate tasks and streamline their operations.
The growing popularity of generative AI platforms like OpenAI’s ChatGPT and DALL-E, which allow users to create latest content instead of just analyzing existing data, further reinforced the notion that the AI market had a great deal of room to expand. In line with Fortune Business Insights, the generative AI market could grow at a shocking compound annual growth rate (CAGR) of 47.5% from 2023 to 2030 — so the most effective AI growth stocks could still generate big multibagger gains.
AI firms often fall into two categories: the chipmakers that produce the chips for processing those complex AI tasks, and the software makers that develop the AI applications for collecting and crunching all of that data. So today, I’ll share my top chipmaking and software plays for the booming AI sectors.
The best two chipmakers: Nvidia and Micron
Nvidia (NASDAQ: NVDA) is the most important AI chipmaker on this planet. Its high-end data center graphics processing units (GPUs) are used to process complex AI tasks for a variety of the world’s leading AI firms, including OpenAI, Microsoft (NASDAQ: MSFT), Amazon, and Alphabet‘s Google.
Nvidia’s GPUs process a wide range of numbers concurrently. That makes them higher fitted to handling AI tasks than traditional CPUs, which still process a single piece of information at a time. The rapid growth of the AI market sparked a buying frenzy in Nvidia’s top-tier data center GPUs, and its revenue surged 126% in fiscal 2024 (which ended this January) as its adjusted EPS soared 288%. Analysts expect its revenue and adjusted EPS to leap one other 81% and 90%, respectively, in fiscal 2025 — but its stock still looks reasonably valued at 38 times forward earnings throughout the context of soaring business growth.
Micron (NASDAQ: MU) is actually considered one of the world’s largest producers of memory chips. It manufactures denser and more power-efficient chips than its larger rivals, and that technological edge makes it a terrific fit for data centers that want to process AI tasks more efficiently. But in fiscal 2023 (which ended last August), Micron’s revenue tumbled 49% and it posted a net loss for the entire yr since it grappled with a hard cyclical slowdown.
Those declines were brought on by the PC market’s post-pandemic slowdown, the highest of the 5G upgrade cycle, macro headwinds for the economic market, and regulatory challenges in China. But for fiscal 2024, analysts expect its revenue to rise 35% with a narrower loss as its core markets stabilize and more data centers upgrade their AI capabilities. Resulting from this fact, it could possibly be a terrific time to buy Micron — which looks quite inexpensive at six times this yr’s sales — as its cyclical downturn ends.
The best two software makers: Microsoft and Snowflake
Microsoft is the best AI software maker for two easy reasons. First, it’s a major investor in OpenAI, the world’s hottest AI start-up. Second, it’s integrating OpenAI’s generative AI tools directly into its search engine, productivity software, and cloud-based services. Those moves enabled Microsoft to grow its cloud infrastructure platform Azure at a faster pace than its two largest competitors, Amazon Web Services (AWS) and Google Cloud Platform (GCP). It also gave it a shot at cracking Google’s search engine dominance while widening its moat against other enterprise software makers.
Analysts expect Microsoft’s revenue and adjusted EPS to grow 14% and 15%, respectively, in fiscal 2025 (which starts this July). It actually just isn’t low price at 32 times forward earnings, but its myriad strengths could justify that premium valuation.
Lastly, if we glance behind the scenes, we’ll see that Snowflake (NYSE: SNOW) helps many large firms organize their data. Snowflake’s cloud-based data warehouses are used to aggregate data from an enormous choice of computing platforms, then clean all of it up so third-party data visualization and analytics applications can easily read it.
Snowflake’s silo-busting approach made it a preferred pick for big and fragmented organizations, and its recent integration of generative AI tools should make it even easier to process all that data. It goals to generate $10 billion in product revenue by fiscal 2029 (which ends in Jan. 2029), which implies it could grow at a CAGR of 30% from fiscal 2024 to fiscal 2029.
Snowflake just isn’t profitable yet and its stock looks a bit pricey at 15 times this yr’s sales, but its market could proceed to expand as organizations gobble up more data for his or her AI applications.
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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. Leo Sun has positions in Amazon. The Motley Idiot has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Snowflake. The Motley Idiot recommends the subsequent options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
Artificial Intelligence (AI) Chipmakers vs. Software Corporations: Here Are My Picks was originally published by The Motley Idiot